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The original documents are located in Box 10, folder "10/18/74 S3979 Emergency Home
Purchase Assistance Act of 1974" of the White House Records Office: Legislation Case
Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Exact duplicates within this folder were not digitized.
APPROVED OCT 18 1974
Digitized from the White House Records Office: Case Legislation Files at the Gerald R. Ford Presidential Library
ACTION
THE WHITE HOUSE
WASHINGTON
October 18, 1974
ceremony
MEMORANDUM FOR
THE PRESIDENT
FROM:
KEN COLE
To
ascheies
SUBJECT:
Enrolled Bill S. 3979
Emergency Home Purchase Assistance
10/18
Act of 1974
Attached for your consideration is Senate bill S. 3979
which increases the availability of reasonably priced
mortgage credit for housing.
We have checked with Secretary Lynn, Roy Ash, the
Counsel's office (Chapman), Bill Timmons and Paul Theis
who recommend approval of the bill and issuance of the
signing statement at Tab B.
RECOMMENDATION
That you sign Senate bill S. 3979 (Tab A)
That you approve the signing statement (Tab B)
FORD LIBRARY & GERALD
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
NOV 18 1974
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill S. 3979 - Emergency Home Purchase
Assistance Act of 1974
Sponsors - Sen. Cranston (D) California and
Sen. Brooke (R) Massachusetts
Last Day for Action
Approved on October 18, 1974; became Public Law 93-449,
Purpose
Authorizes a new, temporary program to assist the housing
industry through purchases of residential mortgages by the
Government National Mortgage Association (GNMA) ; contains
several riders amending other laws.
Agency Recommendations
Office of Management and Budget
Approval
Department of Housing and Urban
Development
Approval
Federal Home Loan Bank Board
Approval
Department of the Interior
Approval
Federal Reserve Board
Approval (informally)
Department of the Treasury
No objection to
approval
Veterans Administration
No objection to
approval
Council of Economic Advisers
No objection
Council on Wage and Price Stability
No objection to
Section 4 (e)
Council on Environmental Quality
Defers to other
agencies
GERALE FORD LIBRARY
2
Discussion
S. 3979 carries out, in substantial measure, a
recommendation in your economic message to the Congress
of October 8, 1974. You urged the Congress to enact
additional legislation to make most home mortgages
eligible for purchase by an agency of the Federal Govern-
ment. You indicated that as soon as such legislation was
sent to you, you would make at least $3 billion immediately
available for mortgage purchases, enough to finance about
100,000 homes.
S. 3979 was passed unanimously (77-0) by the Senate on
October 10, 1974, and by voice vote in the House on
October 15, 1974. You signed the bill on October 18, 1974,
and HUD is now implementing it.
S. 3979 consists essentially of two parts: (1) authoriza-
tion for a temporary "tandem plan" for conventional housing
and (2) a few amendments to other laws, including two which
correct technical errors in the recently-enacted Housing
and Community Development Act of 1974.
Mortgage Purchase Authority
In August 1971, the Government instituted a "tandem plan"
for federally insured mortgages to avoid raising the
interest rate ceiling on those mortgages while maintaining
housing production and sales. Under this plan, HUD (GNMA)
buys eligible mortgages at below-market interest rates and
resells them at the market price. The cost to the Govern-
ment is the subsidy involved, i.e. the loss realized by
GNMA if it sells the mortgage at less than its original
purchase price.
S. 3979 expands this program temporarily by giving HUD
authority for one year to direct GNMA to purchase, service,
sell, or otherwise deal in specified types of conventional
as well as federally insured mortgages when HUD determines
that economic conditions are so seriously adverse as to
require such action to achieve national housing goals. The
bill limits the total amount of purchases and commitments
to $7.75 billion outstanding at any one time.
3
Eligible mortgages include conventional and FHA or VA
insured and guaranteed mortgages covering single-family
homes (other than conventional condominium or cooperative
units), and FHA or VA mortgages covering rental projects,
condominiums, or cooperatives and their individual units.
Conventional mortgages can have a loan-to-value ratio
exceeding 80 percent only if they are privately insured,
The maximum mortgage amount is set at $42,000 per family
residence or dwelling unit ($55,000 in Alaska, Hawaii
and Guam).
Mortgages covering housing constructed more than 12 months
prior to enactment of S. 3979 may be purchased in areas
where HUD determines that there is a serious shortage of
mortgage credit to purchase such housing.
As introduced, the bill would have given HUD discretion
to set the interest rate on mortgages purchased by GNMA
without any maximum limits. It provided that such mortgages
involve "an interest rate not in excess of the rate
determined by the Secretary to be necessary to reimburse
the fund for its expenses under this section." (The
Secretary has such discretion under the earlier tandem plan
for federally-insured mortgages.)
As enacted, however, a floor amendment by Senator Proxmire
was included under which the maximum interest rates in
mortgages purchased by GNMA could not "exceed a rate equal
to the average yield during the month preceding the month
in which a commitment to purchase such mortgage was issued
on all marketable bonds of the United States maturing more
than six but less than twelve years from the date of such
commitment (exclusive of bonds with a coupon rate of less
than 6 percent) plus one-half of 1 percent, adjusted upward
to the nearest one-eighth of 1 percent."
A further provision would direct HUD in fixing interest
rates to take account of State usury limits, and would
provide for a limited override of certain State usury laws
to the extent they apply or have been interpreted so that
discounts or points are counted in calculating the allowable
maximum rate.
4
To provide funds for its mortgage purchases, GNMA could
issue its obligations to the Secretary of the Treasury.
The Secretary would determine the interest rate of the
obligations and GNMA would determine the maturity and
redemption conditions. GNMA would be authorized to
guarantee and issue securities based on pools of mortgages
purchased under the program, and could offer and sell
securities to the Federal Financing Bank and any Federal
Reserve Bank. Prices of mortgages sold by GNMA are
authorized to be at levels which, to the extent feasible,
make the operation fully self-supporting.
Agency comments
HUD, in its attached views letter on the enrolled bill,
notes that several important desirable changes were
incorporated in the enacted version of S. 3979, which were
urged by the Administration. HUD indicates, however, that
there are two undesirable aspects of the bill.
First, the exclusion of conventional mortgages covering
multi-family projects and individual condominium units
will limit substantially the degree of support that can
be given to lower-priced housing.
Second, the Proxmire amendment fixing mortgage interest
rates according to specified Treasury borrowing rates could,
in HUD!s view, "require payment of substantial differential
payments to the extent that mortgages cannot be purchased
and held pending a decline in general mortgage rates but
must be sold in the interim at below market rates. These
problems, moreover, may be accentuated in coming months if,
as seems most likely, the Treasury rates upon which mortgage
interest rates are made to depend decline more rapidly than
the market generally.
Nevertheless, HUD believes the difficulties of the interest
rate provision can be minimized if (1) the commitment
authority provided in the bill is used quickly, while the
formula interest rate is relatively high, (2) commitment
fees are used to offset some initial processing costs, and
(3) the bill is interpreted to permit mortgages to be
purchased at a discount, with certain safeguards, thereby
increasing the effective yield of mortgages to the
Government.
5
Treasury also considers the Proxmire amendment as undesirable
since, in its view, this provision would lead to excessive
points to provide an appropriate yield level and would
increase subsidies to mortgage borrowers when the need is
declining, since Treasury yields typically decline faster
than mortgage rates. Treasury believes this could lead to
greater demand under the earlier tandem plan in which HUD
has total discretion in setting the interest rate as well
as under the new purchase authority.
Miscellaneous Amendments to Other Laws
These include:
-- requiring the Council on Wage and Price Stability
to report through the President to the Congress on a quarterly
basis not later than 30 days after the close of each calendar
quarter concerning the Council's activities, findings and
recommendations with respect to inflation and the economy,
The Council states that this requirement will add to its
workload, but has no objection to this provision.
-- amending the National Housing Act to add provisions
agreed to in conference but inadvertently overlooked in
preparing the conference report on the Housing and Community
Development Act of 1974 (P.L. 93-383), including authorizing
the Secretary to make loans to finance the preservation of
historic structures and to insure under section 203 of the
National Housing Act the amount needed to finance the
purchase of shares in a cooperative.
-- amending the Federal Home Loan Bank Act to increase
from $40,000 to $55,000 the limit on a home mortgage
acceptable as collateral security for an advance by a
Federal Home Loan Bank, thereby conforming this Act to a
similar change in the Home Owners' Loan Act contained in
P.L. 93-383.
-- giving Federal savings and loan associations the
power to act as trustees for the new individual retirement
accounts authorized by the Pension Reform Act of 1974,
P.L. 93-406.
-- authorizing the Federal Reserve Board to make advances
to member banks on the security of residential mortgages,
bearing an interest rate equal to the lowest discount rate
in effect at the member bank.
6
*****
In your signing statement on S. 3979, you concluded,
"Like most emergency measures, this bill has some
minuses. Notwithstanding the increasing proportion
of American families that choose each year to live
in apartments or condominiums, the bill unfortunately
does not cover conventional mortgages for apartment
or condominium projects. Moreover, I had hoped that
this help for the housing industry could be delivered
with a minimum inflationary impact, and I know that
the Congress intended the program to be
self-supporting. However, the bill establishes a
rigid, illogical interest ceiling formula that fails
to relate interest income to actual borrowing costs
and to cover adequately administrative costs."
We believe the scope and operation of this program should
be carefully monitored.
Weefred H Rounnel
Assistant Director for
Legislative Reference
Enclosures
DEPARTMENT
OF
U.S.
HOUSING
*
*
THE GENERAL COUNSEL OF HOUSING AND URBAN DEVELOPMENT
AND
WASHINGTON, D. C. 20410
URBAN
October 17, 1974
Mr. Wilfred H. Rommel
Assistant Director
for Legislative Reference
Office of Management and Budget
Washington, D. C. 20503
Attention: Mrs. Garziglia
Dear Mr. Rommel:
Subject: S. 3979, 93d Congress
Enrolled Enactment
This is in response to your request for our views on the
enrolled enactment of S. 3979, the proposed "Emergency
Home Purchase Assistance Act of 1974.' "
S. 3979 consists essentially of two parts: authorization
for a new, temporary program to assist the housing industry
through the Government National Mortgage Association
purchases of residential mortgages; and a series of amend-
ments to other laws which are summarized in an attachment
to this report. Of the latter amendments, the first two
undertake to correct technical errors in the Housing and
Community Development Act of 1974. The other amendments
relate to laws administered by other agencies. All were
considered largely non-controversial by the initiating
Senate committee, and this Department has no objection to
any of the amendments. Our comments are, accordingly, con-
fined to the GNMA mortgage purchase program contemplated
by the bill.
This program would be initiated by the Secretary of Housing
and Urban Development when he makes a finding that inflation-
ary conditions and related governmental action are having a
"seriously" disproportionate effect on the housing industry
and that the resulting reduction in home acquisition or con-
struction threatens "seriously" to affect the economy and
delay orderly achievement of national housing goals. The
2
Secretary would then direct the Governmental National Mortgage
Association to begin purchasing mortgages and making commit-
ments to purchase mortgages. Eligible mortgages would include
conventional, FHA and VA mortgages covering single-family
homes (apparently other than conventional condominium or
cooperative units), and FHA or VA mortgages covering rental
projects, condominiums or cooperatives and their individual units.
Conventional mortgages could have a loan-to-value ratio ex-
ceeding 80 percent only if they were privately insured. The
maximum mortgage amount would be $42,000 per family residence
or dwelling unit (or $55,000 in Alaska, Hawaii and Guam).
Under the bill, maximum interest rates or yields in mortgages
purchased by GNMA would be established by the Secretary, but
interest rates could not exceed a rate calculated according
to a specified formula based on certain Treasury borrowing
costs. Under this formula, the maximum interest rate for any
mortgage would be fixed at the time of commitment to purchase
and could not exceed the yield during the preceding month on
marketable Treasury issues maturing in more than six but less
than twelve years from the date of commitment, plus one-half
of one percentum (adjusted upward to the nearest one-eighth
of one percent). A further provision would direct the
Secretary in fixing interest rates to take account of State
usury limits, and provides for a limited override of certain
State usury laws to the extent they apply or have been
interpreted so that discounts or points are counted in calcu-
lating the allowable maximum rate. In effect, this provision
contemplates that the face rate of the mortgage would not
exceed the usury rate, but the mortgage could be originated
with points and GNMA could purchase the mortgage at a discount
without impairing the legality of the transaction, regardless
of the way in which the State usury law had been applied to
such discounts.
S. 3979 would permit a program limited to the purchase of
mortgages covering newly constructed homes, although it would
also authorize the Secretary to make available a portion of
his authority for purchase of mortgages financing purchases
1386 LIBRARY QERALD
3
of existing housing in areas where he determines there is a
serious shortage of mortgage credit for such purchases.
Other provisions of S. 3979 would authorize GNMA to guarantee
and to issue, securities based on pools of mortgages pur-
chased under the program and would specifically authorize
the purchase of such guaranteed securities by the Federal
Financing Bank and any Federal Reserve Bank.
The total amount of mortgages and commitments under the
program could not exceed $7.75 billion outstanding at any
one time. The program would terminate one year after
enactment.
S. 3979 would, in substantial measure, carry out the
President's recommendation for additional legislation to
make most home mortgages eligible for purchase by GNMA.
The bill, in this respect, departs in a variety of ways
from earlier versions of the legislation so as to include
features which were urged by the Administration and which
we consider to be important. Among these features are the
following:
-- limits on individual mortgages that can be purchased
are based on mortgage amount, not home price, and
are subject to a realistic, easily administered,
$42,000 basic maximum;
-- there is no earmarking or mandating of authority
for mortgages covering existing housing, thus allow-
ing the program to be concentrated completely or to
whatever extent may be deemed appropriate on new
construction where problems have been most critical;
-- there is no provision prohibiting the sale of
mortgages at less than par, with the result that
program disposition activities may be undertaken
in advance of a decline in mortgage interest rates
and may be managed in a way that takes account of
current market conditions;
-- there are provisions that would facilitate funding
and disposition through expansion of GNMA authority
4
to guarantee mortgage backed securities, as well
as new authority for GNMA issues of such securities
which could be sold to the Federal Financing Bank
in a manner that could minimize the effect of
operations on the budget.
-- the program is authorized on a temporary, interim
basis only, with all authority to enter into new
commitments lapsing at the end of one year.
Despite the above features, there are several aspects of the
bill that are regrettable. One is the apparent exclusion of
conventional mortgages covering not only multifamily projects
but also -- more importantly -- individual condominium units.
This will substantially limit the degree of support that can
be given to the provision of housing within the lower price
ranges.
A second undesirable feature relates to the formula fixing
mortgage interest rates according to specified Treasury
borrowing rates. This provision was adopted on the Senate
floor. According to current Treasury calculations, it would
result in interest rates that are substantially above the
8-1/4 percent rate cited by proponents in the Senate floor
debate -- 9 percent for October commitments, and approxi-
mately 8-5/8 percent in November assuming that current yields
on the particular Treasury issues remain at their current
levels through the 20th of this month.
Nevertheless, even the higher rate would not fully compensate
the Government for potential administrative costs -- as much
as 100 basis points -- or for the risks necessarily involved
in a program of this kind. Further, the statutory rate could
require payment of substantial differential payments to the
extent that mortgages cannot be purchased and held pending a
decline in general mortgage interest rates but must be sold
in the interim at below market rates. These problems, more-
over, may be accentuated in coming months if, as seems most
likely, the Treasury rates upon which mortgage interest rates
are made to depend decline more rapidly than mortgage interest
rates in the market generally.
5
To some extent, the difficulties of the interest rate
provision can be minimized if the commitment authority
provided in the bill is used quickly -- especially this
month -- while the formula interest rate is still relatively
high. Some relief against the impact of the provision can
also be obtained through commitment fees offsetting some
initial processing costs. These fees will not cover other
costs -- such as those involved in establishing reserves
against loss, obtaining financing through the Federal
Financing Bank, and mortgage servicing. However, to the
extent that these other costs cannot be met through the
one-half of one percent allowance provided in the formula,
the effective yield of mortgages to the Government can be
increased by interpreting the bill to permit mortgages to
be purchased at a discount. Nothing in the legislation
prohibits purchases on this basis and in fact the usury
provision appears specifically to contemplate discounts.
We do not believe that purchases involving discounts would
be violative of any legislative intent of assisting home
buyers to receive lower interest rates so long as the
amount of the discount is held to what is needed to cover
costs and steps are taken to require that sellers pay
"points" represented by discount purchases in a manner
similar to the FHA program.
We believe that a balancing of the above considerations
points to early Presidential approval of the enrolled bill.
Given such approval, it would be possible to move quickly
to commit the authority the President has recommended for
assistance to the seriously depressed housing industry using
current maximum permissible mortgage interest rates under
the bill. Decisions on the future scope and operation of
the program, and on the possible desirability of recommending
amendments, could be made later in light of current market
conditions and any problems experienced or anticipated in
administration.
Sincerely,
Robert RElliott
Robert R. Elliott
Attachment
Miscellaneous Amendments to Other Laws Contained in the
Emergency Home Purchase Assistance Act of 1974
1. Section 4 (a) would authorize the Secretary to make loans
of up to $15,000 per unit and with a maximum maturity of
15 years and 32 days to finance the preservation of historic
structures. This provision, which was contained in the Senate
but not the House passed version of S. 3066, was agreed to in
conference but overlooked in the preparation of the reported
bill.
2. Section 4 (b) would authorize the Secretary to insure,
under section 203 of the National Housing Act, the amount
needed to finance the purchase of shares in a cooperative.
This provision, which was in both the Senate and House passed
versions of S. 3066, was inadvertently omitted from the bill
as reported by the Conferees.
3. Section 4 (c) of the bill would raise the limit on a home
mortgage acceptable as collateral security for an advance by
a Federal Home Loan Bank from $40,000 to $55,000. It would
also add language permitting this limit to be increased by
50% in Alaska, Guam and Hawaii. This conforms to change involving
the Home Owners' Loan Act made by HUD's 1974 law.
4. Section 4 (d) would give Federal Savings and Loan Associations
the power to act as trustees for the new individual retirement
accounts authorized by the Pension Reform Act of 1974.
5. Section 4 (e) would amend the new Council on Wage and Price
Stability Act to require the Council to report to the President
on its activities on a quarterly basis and not later than 30 days
after the close of each calendar year. Prior to amendment the
Council was required to report "from time to time."
6. Section 5 would authorize the Federal Reserve Board to make
advances to member banks on the security of residential mortgages.
At present banks offering mortgages as collateral for an advance
from a Federal Reserve Bank are charged a penalty of one-half of one
percent because such mortgages are not classified as eligible paper
and any advances made are limited to four months. The amendment
would remove both of these impediments.
HOME LOAN BANK
FEDERAL HOME LOAN BANK BOARD
WASHINGTON, D.C. 20552
GREAT => GROUP
FEDERAL HOME LOAN BANK SYSTEM
101 INDIANA AVENUE, N.W.
FEDERAL SAVINGS AND LOAN
INSURANCE CORPORATION
FEDERAL SAVINGS AND LOAN SYSTEM
OFFICE OF THE
GENERAL COUNSEL
October 17, 1974
Mr. Wilfred H. Rommel
Assistant Director for
Legislative Reference
Office of Management and Budget
Washington, D.C. 20503
Dear Mr. Rommel:
HAND DELIVER
This is in response to your request for a report of the Board's
views on the enrolled bill, S. 3979, the "Emergency Home Purchase
Assistance Act of 1974. 11 The bill would authorize the Government
National Mortgage Association to purchase certain residential mort-
gage loans when the Secretary of HUD finds that conditions require
such special assistance. The bill was pending in the Senate when the
President delivered his economic message to Congress, and he referred
to it favorably.
Section 4 of the bill makes certain miscellaneous amendments,
including conforming amendments to the Federal Home Loan Bank Act
and the Home Owners' Loan Act of 1933 made necessary by provisions
of recently enacted legislation. The Housing and Community Develop-
ment Act of 1974 (P. L. 93-383 § 703) authorized Federal savings and
loan associations to make mortgage loans up to "$55, 000 (except that
with respect to dwellings in Alaska, Guam, and Hawaii the foregoing
limitation may, by regulation of the Board be increased by not to ex-
ceed 50%)". Section 4(c) of S. 3979 makes a parallel amendment to the
provision of the Federal Home Loan Bank Act setting the maximum
mortgage amount for purposes of determining whether a mortgage is
eligible as collateral for an advance (loan) from a Federal Home Loan
Bank to a member institution. The Employee Retirement Income
Security Act of 1974 (P. L. 93-406 § 2002) provided for special tax
treatment of "individual retirement accounts" maintained in banks or
savings and loan associations. Section 4(d) of S. 3979 gives Federal
savings and loan associations the corporate power to offer such accounts.
The Board supports enactment of the bill.
Sincerely,
Charles E. Allen
for
General Counsel
OF THE INTERIOR
United States Department of the Interior
OFFICE OF THE SECRETARY
March
1849
WASHINGTON, D.C. 20240
OCT 18 1974
Dear Mr. Ash:
This responds to your request for our views on the enrolled bill
S. 3979, "To increase on an emergency basis the availability of
reasonably priced mortgage credit for housing."
We recommend that the President approve the enrolled bill.
S. 3979 would help supply mortgage credit through Government resources
by amending the charter act of the Government National Mortgage
Association (hereinafter the GNMA) to allow purchase of conventionally
financed mortages. If the Secretary of the Department of Housing and
Urban Development determines that a substantial number of families are
unable to obtain mortgage credit at reasonable rates and that such
circumstance is causing a substantial reduction in home construction
and acquisition, then he may direct the GNMA to purchase mortgages
under the conditions set forth in the bill. Money to finance the
purchase of mortgages would be obtained from a housing trust fund
to be established in GNMA. The trust fund would be financed by
borrowings of up to $10 billion dollars per year from the Secretary
of the Treasury.
The sections of S. 3979 that impact upon programs which are the re-
sponsibility of this Department are: 3(a), 4(a)(1) and (2), and 4(c).
Section 3(a) amends Title III of the National Housing Act and adds
a new Section entitled the "Housing Trust Fund" as section 313 of
that Act. It sets forth the conditions under which the GNMA may
make commitments to purchase and purchase mortgages, one of which
is that such mortgage must involve an original principal obligation
not to exceed $42,000 per family residence or dwelling unit, except
that the original principal obligation may not exceed $55,000 in
the case of properties in Alaska, Hawaii and Guam. The higher
ceiling for Guam, as well as for Hawaii and Alaska, takes into
account housing costs in these places which have always been higher
than on the mainland.
Sections (4)(a)(1)and (2) would authorize the Secretary of HUD to
make home improvement loans to finance the preservation of historic
structures.
CONSERVE
AMERICA'S
ENERGY
Save Energy and You Serve America!
For purposes of the bill, the term "historic structure" means
residential structures registered in the National Register of
Historic Places or certified by the Secretary of the Interior
to conform to National Register criteria. The term "preservation"
means restoration or rehabilitation undertaken for such purposes
as are approved by the Secretary of HUD in regulations issued by him,
after consulting with the Secretary of the Interior.
The terms of the loan for this preservation are: $15,000 maximum
per unit and a maturity not to exceed 15 years and 32 days.
Preservation of the nation's architectural and historic heritage
was one of the goals set forth in the President's 1971 Message on the
Environment. The President noted the continued loss of buildings
of historic value as recorded by the Historic American Building
Survey. One cause was the unwillingness of lending institutions
to loan funds for the restoration and rehabilitation of historic
buildings because of the age and often the location of such
buildings. One of the President's legislative proposals was
for Federal insurance of home improvement loans for historic
residential properties to a maximum of $15,000 per dwelling unit.
Sections (a) (1) and (2) will reduce the reliance upon Federal grants
for this type of preservation. A Federal grant may require as one
of its conditions that the property be open to the public. Many of
these historic sites are privately owned and residential, and, thus,
do not meet this condition. S. 3979 will resolve this problem
through its insured loan provision.
Section 4 (c) would make a change in the Federal Home Loan Bank Act
with respect to the maximum loan amount for eligible mortgages.
The maximum is raised to $55,000, except that with respect to
dwellings in Alaska, Hawaii and Guam, the limitation may be increased
to up to 50% of that figure. This recognizes the higher housing
costs: in these areas, and is similar to the higher ceiling in
Section 3(a).
Sincerely yours,
Assistant
Secretary of the Interior
Honorable Roy L. Ash
Director
Office of Management and Budget
Washington, D.C. 20503
2
OF
THE TREASURY THE
THE GENERAL COUNSEL OF THE TREASURY
WASHINGTON, D.C. 20220
1789
OCT 21 1974
Director, Office of Management and Budget
Executive Office of the President
Washington, D. C. 20503
Attention: Assistant Director for Legislative
Reference
Sir:
Reference is made to your request for the views of this
Department on the enrolled enactment of S. 3979, "To increase
on an emergency basis the availability of reasonably priced
mortgage credit for housing."
The enrolled enactment would authorize GNMA to purchase up
to $7-3/4 billion, outstanding at any one time, of FHA, VA, and
conventional mortgages. The limitation on the amount is not
significant since sales would restore the authorization. The
Secretary of HUD, however, would have discretion with respect to
the rate at which new commitments would be made.
The bill was amended on the Senate floor (the so-called
Proxmire amendment) to establish the maximum rate on such mortgages
by adding 1/2 of 1 percent to the yield during the preceding month
on bonds of the United States maturing in more than 6 but less
than 12 years. We consider this an undesirable amendment, since
it would produce an unrealistic mortgage rate ceiling leading to
excessive "points" to provide an appropriate yield level. In
addition, it poses problems with respect to the regular Tandem Plan
under which the Secretary of HUD has total discretion in setting
the mortgage rate.
In addition, with declining rates of interest, since Treasury
yields typically decline faster than mortgage rates, the effect
would be to increase subsidies to mortgage borrowers as the need
for such subsidies declined. Thus the effect could be to lead to
greater demand under the present Tandem Plan as well as the new
purchase plan proposed in the bill.
-2-
The President has approved the enrolled enactment. In view
of the current conditions in the home building industry, and the
1 year expiration date of the proposed mortgage purchase program,
the Department has no objection to the approval of the legislation.
Sincerely yours,
General Counsel
1415 in FORD LIBRAR
NOMINTS AUOV
VETERANS ADMINISTRATION
OFFICE OF THE ADMINISTRATOR OF VETERANS AFFAIRS
WASHINGTON, D.C. 20420
1030
October 18, 1974
The Honorable
Roy L. Ash
Director, Office of Management
and Budget
Washington, D. C. 20503
Dear Mr. Ash:
This will reply to the request of the Assistant
Director for Legislative Reference for comments on the
enrolled enactment of S. 3979, 93d Congress, the "Emergency
Home Purchase Assistance Act of 1974."
In general, the bill is intended to remedy the
Congressional finding of the unavailability of residential
mortgage credit and to provide an alternate source of such
credit at favorable interest rates geared to the yield on
Government securities.
Section 3 of the bill creates a new section 313
of The National Housing Act to provide the Government
National Mortgage Association with new authority to make
commitments and purchase mortgages. Whenever the Secretary
of Housing and Urban Development finds that inflationary
conditions and related government actions are having a
disproportionate adverse effect upon the housing industry
and therefore threaten the economy, the Secretary shall
direct GNMA to issue commitments and purchase mortgages
pursuant to the provisions of the bill.
Subsection (b) of the new section 3 provides that
the mortgages to be purchased by GNMA under this bill are
to include more than four-family residences (including
cooperatives and condominiums, and individual units therein)
as well as one-to four-family residences insured or guaranteed
under chapter 37 of title 38 of the United States Code.
To the extent that section 3 of the bill may make
available more money, at reasonable interest rates, for
veterans purchasing housing, we believe it is in their best
interest and we, therefore, support the bill, in principle.
However, since the enactment more directly relates to activi-
ties and responsibilities of the Department of Housing and
Urban Development and the Treasury Department, we defer to
their views on the specific provisions of this section.
Other provisions of the enrolled enactment would
amend various laws administered by other agencies which have
no effect upon the Veterans Administration. We offer no
comment thereon.
The Veterans Administration has no objection to
approval of this measure by the President.
Sincerely,
ResCondebush RICHARD L. ROUDEBUSH
Administrator
2
THE CHAIRMAN OF THE
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON
November 1, 1974
Dear Mr. Rommel:
This is in response to your request for the
views of the Council of Economic Advisers on S. 3979,
an Act "To increase on an emergency basis the avail-
ability of reasonably priced mortgage credit for
housing."
We favor the purpose of the temporary pro-
visions in this act to increase funds available for
mortgages during the current crisis.
There are provisions in the bill that we find
objectionable including the level of subsidy occasioned
by charging only 50 basis points above the applicable
Treasury bond rate and the provision permitting the
Federal Reserve Banks to loan money to banks using
mortgages as collateral at the lowest possible discount
rate.
Despite these reservations, however, the
alternatives are such that we have no objection to the
bill.
Sincerely yours,
Alan Greenspan
Mr. Wilfred H. Rommel
Assistant Director for Legislative Reference
Office of Management and Budget
Washington, D.C. 20503
ANERIICAN REVOLUTION WIDENTENNAY
GERALD FORD LIBRART
1776-1976
EXECUTIVE OFFICE OF THE PRESIDENT
COUNCIL ON WAGE AND PRICE STABILITY
WASHINGTON, D.C. 20503
October 18, 1974
Mr. W. H. Rommel
Assistant Director for
Legislative Reference
Office of Management
and Budget
Washington, D. C. 20503
Dear Mr. Rommel:
This is in response to your request for our views and recommend-
ations with respect to the enrolled bill S.3979, the "Emergency Home
Purchase Assistance Act of 1974."
The primary purpose of S.3979 is to provide a new source of
residential mortgage credit on an emergency basis. We would defer to
the views and recommendations of the Secretary of Housing and Urban
Development and the Secretary of the Treasury with respect to the
provisions of S.3979 relating to this purpose.
S.3979, however, would also amend Public Law 92-387 which would
directly affect the Council on Wage and Price Stability. Section 4(e)
of S.3979 would amend section 5 of P. L. 93-387 to require that the
Council on Wage and Price Stability report to the President, and through
him to the Congress, on a quarterly basis concerning its "activities,
findings, and recommendations with respect to the containment of inflation
and the maintenance of a vigorous and prosperous peacetime economy."
These quarterly reports would have to be made not later than thirty days
after the close of each calendar quarter. P. L. 93-387 requires only
that the Council report to the President and the Congress from time to
time on its activities.
While the requirement to prepare quarterly reports will add to the
Council's workload, we do not believe it will create any serious problem.
Therefore, we have no objection to section 4(e) of S.3979.
Sincerely,
arbut Rees
Albert Rees
Director
EXECUTIVE OFFICE OF THE PRESIDENT
COUNCIL ON ENVIRONMENTAL QUALITY
722 JACKSON PLACE, N. W.
WASHINGTON, D. C. 20006
October 25, 1974
MEMORANDUM FOR WILFRED H. ROMMEL, ASSISTANT DIRECTOR
FOR LEGISLATIVE REFERENCE
OFFICE OF MANAGEMENT AND BUDGET
ATTENTION: Mrs. Garziglia
SUBJECT:
S. 3979 - Enrolled To increase on an
emergency basis the availability of
reasonably priced mortgage credit for
housing
This office will defer to the views of other agencies
more directly affected by this legislation.
Gary Gary L. Widman Widman
General Counsel
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
NOV 18 1974
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill S. 3979 - Emergency Home Purchase
Assistance Act of 1974
Sponsors - Sen. Cranston (D) California and
Sen. Brooke (R) Massachusetts
Last Day for Action
Approved on October 18, 1974, became Public Law 93-449.
Purpose
Authorizes a new, temporary program to assist the housing
industry through purchases of residential mortgages by the
Government National Mortgage Association (GNMA) , contains
several riders amending other laws.
Agency Recommendations
Office of Management and Budget
Approval
Department of Housing and Urban
Development
Approval
Federal Home Loan Bank Board
Approval
Department of the Interior
Approval
Federal Reserve Board
Approval (informally)
Department of the Treasury
No objection to
approval
Veterans Administration
No objection to
approval
Council of Economic Advisers
No objection
Council on Wage and Price Stability
No objection to
Section 4 (e)
Council on Environmental Quality
Defers to other
agencies
2
Discussion
S. 3979 carries out, in substantial measure, a
recommendation in your economic message to the Congress
of October 8, 1974. You urged the Congress to enact
additional legislation to make most home mortgages
eligible for purchase by an agency of the Federal Govern-
ment. You indicated that as soon as such legislation was
sent to you, you would make at least $3 billion immediately
available for mortgage purchases, enough to finance about
100,000 homes.
S. 3979 was passed unanimously (77-0) by the Senate on
October 10, 1974, and by voice vote in the House on
October 15, 1974. You signed the bill on October 18, 1974,
and HUD is now implementing it.
S. 3979 consists essentially of two parts: (1) authoriza-
tion for a temporary "tandem plan" for conventional housing
and (2) a few amendments to other laws, including two which
correct technical errors in the recently-enacted Housing
and Community Development Act of 1974.
Mortgage Purchase Authority
In August 1971, the Government instituted a "tandem plan"
for federally insured mortgages to avoid raising the
interest rate ceiling on those mortgages while maintaining
housing production and sales. Under this plan, HUD (GNMA)
buys eligible mortgages at below-market interest rates and
resells them at the market price. The cost to the Govern-
ment is the subsidy involved, 1.e. the loss realized by
GNMA if it sells the mortgage at less than its original
purchase price.
S. 3979 expands this program temporarily by giving HUD
authority for one year to direct GNMA to purchase, service,
sell, or otherwise deal in specified types of conventional
as well as federally insured mortgages when HUD determines
that economic conditions are so seriously adverse as to
require such action to achieve national housing goals. The
bill limits the total amount of purchases and commitments
to $7.75 billion outstanding at any one time.
3
Eligible mortgages include conventional and FHA or VA
insured and guaranteed mortgages covering single-family
homes (other than conventional condominium or cooperative
units), and FHA or VA mortgages covering rental projects,
condominiums, or cooperatives and their individual units.
Conventional mortgages can have a loan-to-value ratio
exceeding 80 percent only if they are privately insured.
The maximum mortgage amount is set at $42,000 per family
residence or dwelling unit ($55,000 in Alaska, Hawaii
and Guam).
Mortgages covering housing constructed more than 12 months
prior to enactment of S. 3979 may be purchased in areas
where HUD determines that there is a serious shortage of
mortgage credit to purchase such housing.
As introduced, the bill would have given HUD discretion
to set the interest rate on mortgages purchased by GNMA
without any maximum limits. It provided that such mortgages
involve "an interest rate not in excess of the rate
determined by the Secretary to be necessary to reimburse
the fund for its expenses under this section." (The
Secretary has such discretion under the earlier tandem plan
for federally-insured mortgages.)
As enacted, however, a floor amendment by Senator Proxmire
was included under which the maximum interest rates in
mortgages purchased by GNMA could not "exceed a rate equal
to the average yield during the month preceding the month
in which a commitment to purchase such mortgage was issued
on all marketable bonds of the United States maturing more
than six but less than twelve years from the date of such
commitment (exclusive of bonds with a coupon rate of less
than 6 percent) plus one-half of 1 percent, adjusted upward
to the nearest one-eighth of 1 percent."
A further provision would direct HUD in fixing interest
rates to take account of State usury limits, and would
provide for a limited override of certain State usury laws
to the extent they apply or have been interpreted so that
discounts or points are counted in calculating the allowable
maximum rate.
4
To provide funds for its mortgage purchases, GNMA could
issue its obligations to the Secretary of the Treasury.
The Secretary would determine the interest rate of the
obligations and GNMA would determine the maturity and
redemption conditions. GNMA would be authorized to
guarantee and issue securities based on pools of mortgages
purchased under the program, and could offer and sell
securities to the Federal Financing Bank and any Federal
Reserve Bank. Prices of mortgages sold by GNMA are
authorized to be at levels which, to the extent feasible,
make the operation fully self-supporting.
Agency comments
HUD, in its attached views letter on the enrolled bill,
notes that several important desirable changes were
incorporated in the enacted version of S. 3979, which were
urged by the Administration. HUD indicates, however, that
there are two undesirable aspects of the bill.
First, the exclusion of conventional mortgages covering
multi-family projects and individual condominium units
will limit substantially the degree of support that can
be given to lower-priced housing.
Second, the Proxmire amendment fixing mortgage interest
rates according to specified Treasury borrowing rates could,
in HUD's view, "require payment of substantial differential
payments to the extent that mortgages cannot be purchased
and held pending a decline in general mortgage rates but
must be sold in the interim at below market rates. These
problems, moreover, may be accentuated in coming months if,
as seems most likely, the Treasury rates upon which mortgage
interest rates are made to depend decline more rapidly than
the market generally."
Nevertheless, HUD believes the difficulties of the interest
rate provision can be minimized if (1) the commitment
authority provided in the bill is used quickly, while the
formula interest rate is relatively high, (2) commitment
fees are used to offset some initial processing costs, and
(3) the bill is interpreted to permit mortgages to be
purchased at a discount, with certain safeguards, thereby
increasing the effective yield of mortgages to the
Government.
5
Treasury also considers the Proxmire amendment as undesirable
since, in its view, this provision would lead to excessive
points to provide an appropriate yield level and would
increase subsidies to mortgage borrowers when the need is
declining, since Treasury yields typically decline faster
than mortgage rates. Treasury believes this could lead to
greater demand under the earlier tandem plan in which HUD
has total discretion in setting the interest rate as well
as under the new purchase authority.
Miscellaneous Amendments to Other Laws
These include:
-- requiring the Council on Wage and Price Stability
to report through the President to the Congress on a quarterly
basis not later than 30 days after the close of each calendar
quarter concerning the Council's activities, findings and
recommendations with respect to inflation and the economy.
The Council states that this requirement will add to its
workload, but has no objection to this provision.
-- amending the National Housing Act to add provisions
agreed to in conference but inadvertently overlooked in
preparing the conference report on the Housing and Community
Development Act of 1974 (P.L. 93-383), including authorizing
the Secretary to make loans to finance the preservation of
historic structures and to insure under section 203 of the
National Housing Act the amount needed to finance the
purchase of shares in a cooperative.
-- amending the Federal Home Loan Bank Act to increase
from $40,000 to $55,000 the limit on a home mortgage
acceptable as collateral security for an advance by a
Federal Home Loan Bank, thereby conforming this Act to a
similar change in the Home Owners' Loan Act contained in
P.L. 93-383.
-- giving Federal savings and loan associations the
power to act as trustees for the new individual retirement
accounts authorized by the Pension Reform Act of 1974,
P.L. 93-406.
-- authorizing the Federal Reserve Board to make advances
to member banks on the security of residential mortgages,
bearing an interest rate equal to the lowest discount rate
in effect at the member bank.
6
*****
In your signing statement on S. 3979, you concluded,
"Like most emergency measures, this bill has some
minuses. Notwithstanding the increasing proportion
of American families that choose each year to live
in apartments or condominiums, the bill unfortunately
does not cover conventional mortgages for apartment
or condominium projects. Moreover, I had hoped that
this help for the housing industry could be delivered
with a minimum inflationary impact, and I know that
the Congress intended the program to be
self-supporting. However, the bill establishes a
rigid, illogical interest ceiling formula that fails
to relate interest income to actual borrowing costs
and to cover adequately administrative costs."
We believe the scope and operation of this program should
be carefully monitored.
(signed) Wilfred H. Rounel
Assistant Director for
Legislative Reference
Enclosures
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
NOV 18 1974
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill S. 3979 - Emergency Home Purchase
Assistance Act of 1974
Sponsors - Sen. Cranston (D) California and
Sen. Brooke (R) Massachusetts
Last Day for Action
Approved on October 18, 1974, became Public Law 93-449.
Purpose
Authorizes a new, temporary program to assist the housing
industry through purchases of residential mortgages by the
Government National Mortgage Association (GNMA) ; contains
several riders amending other laws.
Agency Recommendations
Office of Management and Budget
Approval
Department of Housing and Urban
Development
Approval
Federal Home Loan Bank Board
Approval
Department of the Interior
Approval
Federal Reserve Board
Approval (informally)
Department of the Treasury
No objection to
approval
Veterans Administration
No objection to
approval
Council of Economic Advisers
No objection
Council on Wage and Price Stability
No objection to
Section 4 (e)
Council on Environmental Quality
Defers to other
agencies
2
Discussion
S. 3979 carries out, in substantial measure, a
recommendation in your economic message to the Congress
of October 8, 1974. You urged the Congress to enact
additional legislation to make most home mortgages
eligible for purchase by an agency of the Federal Govern-
ment. You indicated that as soon as such legislation was
sent to you, you would make at least $3 billion immediately
available for mortgage purchases, enough to finance about
100,000 homes.
S. 3979 was passed unanimously (77-0) by the Senate on
October 10, 1974, and by voice vote in the House on
October 15, 1974. You signed the bill on October 18, 1974,
and HUD is now implementing it.
S. 3979 consists essentially of two parts: (1) authoriza-
tion for a temporary "tandem plan" for conventional housing
and (2) a few amendments to other laws, including two which
correct technical errors in the recently-anacted Housing
and Community Development Act of 1974.
Mortgage Purchase Authority
In August 1971, the Government instituted a "tandem plan"
for federally insured mortgages to avoid raising the
interest rate ceiling on those mortgages while maintaining
housing production and sales. Under this plan, HUD (GNMA)
buys eligible mortgages at below-market interest rates and
resells them at the market price. The cost to the Govern-
ment is the subsidy involved, 1.e. the loss realized by
GNMA if it sells the mortgage at less than its original
purchase price.
S. 3979 expands this program temporarily by giving HUD
authority for one year to direct GNMA to purchase, service,
sell, or otherwise deal in specified types of conventional
as well as federally insured mortgages when HUD determines
that economic conditions are so seriously adverse as to
require such action to achieve national housing goals. The
bill limits the total amount of purchases and commitments
to $7.75 billion outstanding at any one time.
3
Eligible mortgages include conventional and FHA or VA
insured and guaranteed mortgages covering single-family
homes (other than conventional condominium or cooperative
units), and FHA or VA mortgages covering rental projects,
condominiums, or cooperatives and their individual units.
Conventional mortgages can have a loan-to-value ratio
exceeding 80 percent only if they are privately insured.
The maximum mortgage amount is set at $42,000 per family
residence or dwelling unit ($55,000 in Alaska, Hawaii
and Guam).
Mortgages covering housing constructed more than 12 months
prior to enactment of S. 3979 may be purchased in areas
where HUD determines that there is a serious shortage of
mortgage credit to purchase such housing.
As introduced, the bill would have given HUD discretion
to set the interest rate on mortgages purchased by GNMA
without any maximum limits. It provided that such mortgages
involve "an interest rate not in excess of the rate
determined by the Secretary to be necessary to reimburse
the fund for its expenses under this section." (The
Secretary has such discretion under the earlier tandem plan
for federally-insured mortgages.)
As enacted, however, a. floor amendment by Senator Proxmire
was included under which the maximum interest rates in
mortgages purchased by GNMA could not "exceed a rate equal
to the average yield during the month preceding the month
in which a commitment to purchase such mortgage was issued
on all marketable bonds of the United States maturing more
than six but less than twelve years from the date of such
commitment (exclusive of bonds with a coupon rate of less
than 6 percent) plus one-half of 1 percent, adjusted upward
to the nearest one-eighth of 1 percent."
A further provision would direct HUD in fixing interest
rates to take account of State usury limits, and would
provide for a limited override of certain State usury laws
to the extent they apply or have been interpreted so that
discounts or points are counted in calculating the allowable
maximum rate.
4
To provide funds for its mortgage purchases, GNMA could
issue its obligations to the Secretary of the Treasury.
The Secretary would determine the interest rate of the
obligations and GNMA would determine the maturity and
redemption conditions. GNMA would be authorized to
guarantee and issue securities based on pools of mortgages
purchased under the program, and could offer and sell
securities to the Federal Financing Bank and any Federal
Reserve Bank. Prices of mortgages sold by GNMA are
authorised to be at levels which, to the extent feasible,
make the operation fully self-supporting.
Agency comments
HUD, in its attached views letter on the enrolled bill,
notes that several important desirable changes were
incorporated in the enacted version of S. 3979, which were
urged by the Administration. HUD indicates, however, that
there are two undesirable aspects of the bill.
First, the exclusion of conventional mortgages covering
multi-family projects and individual condominium units
will limit substantially the degree of support that can
be given to lower-priced housing.
Second, the Proxmire amendment fixing mortgage interest
rates according to specified Treasury borrowing rates could,
in HUD;s view, "require payment of substantial differential
payments to the extent that mortgages cannot be purchased
and held pending a decline in general mortgage rates but
must be sold in the interim at below market rates. These
problems, moreover, may be accentuated in coming months if,
as seems most likely, the Treasury rates upon which mortgage
interest rates are made to depend decline more rapidly than
the market generally."
Nevertheless, HUD believes the difficulties of the interest
rate provision can be minimized if (1) the commitment
authority provided in the bill is used quickly, while the
formula interest rate is relatively high, (2) commitment
fees are used to offset some initial processing costs, and
(3) the bill is interpreted to permit mortgages to be
purchased at a discount, with certain safeguards, thereby
increasing the effective yield of mortgages to the
Government.
5
Treasury also considers the Proxmire amendment as undesirable
since, In its view, this provision would lead to excessive
points to provide an appropriate yield level and would
increase subsidies to mortgage borrowers when the need is
declining, since Treasury yields typically decline faster
than mortgage rates, Treasury believes this could lead to
greater demand under the earlier tandem plan in which HUD
has total discretion in setting the interest rate as well
as under the new purchase authority.
Miscellaneous Amendments to Other Laws
These include:
- requiring the Council on Wage and Price Stability
to report through the President to the Congress on a quarterly
basis not later than 30 days after the close of each calendar
quarter concerning the Council's activities, findings and
recommendations with respect to inflation and the economy.
The Council states that this requirement will add to its
workload, but has no objection to this provision.
- amending the National Housing Act to add provisions
agreed to in conference but inadvertently overlooked in
preparing the conference report on the Housing and Community
Development Act of 1974 (P.L. 93-383), including authorising
the Secretary to make loans to finance the preservation of
historic structures and to insure under section 203 of the
National Housing Act the amount needed to finance the
purchase of shares in a dooperative.
-- amending the Federal Home Loan Bank Act to increase
from $40,000 to $55,000 the limit on a home mortgage
acceptable as collateral security for an advance by a
Federal Home Loan Bank, thereby conforming this Act to a
similar change in the Home Owners' Loan Act contained in
P.L. 93-385.
-- giving Federal savings and loan associations the
power to act as trustees for the new individual retirement
accounts authorized by the Pension Reform Act of 1974,
P.L. 93-406.
- authorizing the Federal Reserve Board to make advances
to member banks on the security of residential mortgages,
hearing an interest rate equal to the lowest discount rate
in effect at the member bank.
6
*****
In your signing statement on S. 3979, you concluded,
"Like most emergency measures, this bill has some
minuses. Notwithstanding the increasing proportion
of American families that choose each year to live
in apartments or condominiums, the bill unfortunately
does not cover conventional mortgages for apartment
or condominium projects. Moreover, I had hoped that
this help for the housing industry could be delivered
with a minimum inflationary impact, and I know that
the Congress intended the program to be
self-supporting. However, the bill establishes a
rigid, illogical interest ceiling formula that fails
to relate interest income to actual borrowing costs
and to cover adequately administrative costs."
We believe the scope and operation of this program should
be carefully monitored.
(signed) Wilfred H. Ronmel
Assistant Director for
Legislative Reference
Enclosures
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
NOV 18 1974
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill S. 3979 - Emergency Home Purchase
Assistance Act of 1974
Sponsors - Sen. Cranston (D) California and
Sen. Brooke (R) Massachusetts
Last Day for Action
Approved on October 18, 1974, became Public Law 93-449.
Purpose
Authorizes a new, temporary program to assist the housing
industry through purchases of residential mortgages by the
Government National Mortgage Association (GNMA) contains
several riders amending other laws.
Agency Recommendations
Office of Management and Budget
Approval
Department of Housing and Urban
Development
Approval
Federal Home Loan Bank Board
Approval
Department of the Interior
Approval
Federal Reserve Board
Approval (informally)
Department of the Treasury
No objection to
approval
Veterans Administration
No objection to
approval
Council of Economic Advisers
No objection
Council on Wage and Price Stability
No objection to
Section 4 (e)
Council on Environmental Quality
Defers to other
agencies
2
Discussion
S. 3979 carries out, in substantial measure, a
recommendation in your economic message to the Congress
of October 8, 1974. You urged the Congress to enact
additional legislation to make most home mortgages
eligible for purchase by an agency of the Federal Govern-
ment. You indicated that as soon as such legislation was
sent to you, you would make at least $3 billion immediately
available for mortgage purchases, enough to finance about
100,000 homes.
S. 3979 was passed unanimously (77-0) by the Senate on
October 10, 1974, and by voice vote in the House on
October 15, 1974. You signed the bill on October 18, 1974,
and HUD is now implementing it.
S. 3979 consists essentially of two parts: (1) authoriza-
tion for a temporary "tandem plan" for conventional housing
and (2) a few amendments to other laws, including two which
correct technical errors in the recently-enacted Housing
and Community Development Act of 1974.
Mortgage Purchase Authority
In August 1971, the Government instituted a "tandem plan"
for federally insured mortgages to avoid raising the
interest rate ceiling on those mortgages while maintaining
housing production and sales. Under this plan, HUD (GNMA)
buys eligible mortgages at below-market interest rates and
resells them at the market price. The cost to the Govern-
ment is the subsidy involved, 1.e. the loss realized by
GNMA if it sells the mortgage at less than its original
purchase price.
S. 3979 expands this program temporarily by giving HUD
authority for one year to direct GNMA to purchase, service,
sell, or otherwise deal in specified types of conventional
as well as federally insured mortgages when HUD determines
that economic conditions are so seriously adverse as to
require such action to achieve national housing goals. The
bill limits the total amount of purchases and commitments
to $7.75 billion outstanding at any one time.
3
Eligible mortgages include conventional and FHA or VA
insured and guaranteed mortgages covering single-family
homes (other than conventional condominium or cooperative
units), and FHA or VA mortgages covering rental projects,
condominiums, or cooperatives and their individual units.
Conventional mortgages can have a lean-to-value ratio
exceeding 80 percent only if they are privately insured.
The maximum mortgage amount is set at $42,000 per family
residence or dwelling unit ($55,000 in Alaska, Hawaii
and Guam).
Mortgages covering housing constructed more than 12 months
prior to enactment of S. 3979 may be purchased in areas
where HUD determines that there is a serious shortage of
mortgage credit to purchase such housing.
As introduced, the bill would have given HUD discretion
to set the interest rate on mortgages purchased by GNMA
without any maximum limits. It provided that such mortgages
involve "an interest rate not in excess of the rate
determined by the Secretary to be necessary to reimburse
the fund for its expenses under this section." (The
Secretary has such discretion under the earlier tandem plan
for federally-insured mortgages.)
As enacted, however, a floor amendment by Senator Proxmire
was included under which the maximum interest rates in
mortgages purchased by GNMA could not "exceed a rate equal
to the average yield during the month preceding the month
in which a commitment to purchase such mortgage was issued
on all marketable bonds of the United States maturing more
than six but less than twelve years from the date of such
commitment (exclusive of bonds with a coupon rate of less
than 6 percent) plus one-half of 1 percent, adjusted upward
to the nearest one-eighth of 1 percent."
A further provision would direct HUD in fixing interest
rates to take account of State usury limits, and would
provide for a limited override of certain State usury laws
to the extent they apply or have been interpreted so that
discounts or points are counted in calculating the allowable
maximum rate,
4
To provide funds for its mortgage purchases, GNMA could
issue its obligations to the Secretary of the Treasury.
The Secretary would determine the interest rate of the
obligations and GNMA would determine the maturity and
redemption conditions. GNMA would be authorized to
guarantee and issue securities based on pools of mortgages
purchased under the program, and could offer and sell
securities to the Federal Financing Bank and any Federal
Reserve Bank. Prices of mortgages sold by GNMA are
authorised to be at levels which, to the extent feasible,
make the operation fully self-supporting.
Agency comments
HUD, in its attached views letter on the enrolled bill,
notes that several important desirable changes were
incorperated in the enacted version of S. 3979, which were
urged by the Administration. HUD indicates, however, that
there are two undesirable aspects of the bill.
First, the exclusion of conventional mortgages covering
multi-family projects and individual condominium units
will limit substantially the degree of support that can
be given to lower-priced housing.
Second, the Prommire amendment fixing mortgage interest
rates according to specified Treasury borrowing rates could,
in HVD's view, "require payment of substantial differential
payments to the extent that mortgages cannot be purchased
and held pending a decline in general mortgage rates but
must be sold in the interim at below market rates. These
problems, moreover, may be accentuated in coming months if,
as seems most likely, the Treasury rates upon which mortgage
interest rates are made to depend decline more rapidly than
the market generally."
Nevertheless, HUD believes the difficulties of the interest
rate provision can be minimised if (1) the commitment
authority provided in the bill is used quickly, while the
formula interest rate is relatively high, (2) commitment
fees are used to offset some initial processing costs, and
(3) the bill is interpreted to permit mortgages to be
purchased at a discount, with certain safeguards, thereby
increasing the effective yield of mortgages to the
Government.
5
Treasury also considers the Proxmire amendment as undesirable
since, In its view, this provision would lead to excessive
points to provide an appropriate yield level and would
increase subsidies to mortgage borrowers when the need is
declining, since Treasury yields typically decline faster
than mortgage rates. Treasury believes this could lead to
greater demand under the earlier tandem plan in which HUD
has total discretion in setting the interest rate as well
as under the new purchase authority.
Miscellaneous Amendments to Other Laws
These include:
-- requiring the Council on Wage and Price Stability
to report through the President to the Congress on a quarterly
basis not later than 30 days after the close of each calendar
quarter concerning the Council's activities, findings and
recommendations with respect to inflation and the economy.
The Council states that this requirement will add to its
workload, but has no objection to this provision.
-- amending the National Housing Act to add provisions
agreed to in conference but inadvertently overlooked in
preparing the conference report on the Housing and Community
Development Act of 1974 (P.L. 93-383), including authorising
the Secretary to make loans to finance the preservation of
historic structures and to insure under section 203 of the
National Housing Act the amount needed to finance the
purchase of shares in a cooperative.
--- amending the Federal Home Loan Bank Act to increase
from $40,000 to $55,000 the limit on a home mortgage
acceptable as collateral security for an advance by a
Federal Home Loan Bank, thereby conforming this Act to a
similar change in the Home Owners' Loan Act contained in
P.L. 93-383.
- giving Federal savings and loan associations the
power to act as trustees for the new individual retirement
accounts authorized by the Pension Reform Act of 1974,
P.L. 93-406.
-- authorizing the Federal Reserve Board to make advances
to member banks on the security of residential mortgages,
bearing an interest rate equal to the lowest discount rate
in effect at the member bank.
6
*****
In your signing statement on S. 3979, you concluded,
"Like most emergency measures, this bill has some
minuses. Notwithstanding the increasing proportion
of American families that choose each year to live
in apartments or condominiums, the bill unfortunately
does not cover conventional mortgages for apartment
or condominium projects. Moreover, I had hoped that
this help for the housing industry could be delivered
with a minimum inflationary impact, and I know that
the Congress intended the program to be
self-supporting. However, the bill establishes a
rigid, illogical interest ceiling formula that fails
to relate interest income to actual horrowing costs
and to cover adequately administrative costs."
We believe the scope and operation of this program should
be carefully monitored.
(signed) Wilfred H. Romanol
Assistant Director for
Legislative Reference
Enclosures
EMBARGOED FOR RELEASE
NOT RUN
UNTIL 10:30 A.M., EDT
Embargoed for Release Until
OCTOBER 18, 1974
Office of the White House Press Secretary
THE WHITE HOUSE
STATEMENT BY THE PRESIDENT
It is with great pleasure today that I am signing into law S. 3979,
the Emergency Home Purchase Assistance Act of 19742.
In my remarks to the Joint Session of the Congress on October 8, I
urged the Congress to enact, before recess, additional legislation
to make most home mortgages eligible for purchase by an agency of
the Federal Government. I also remarked that I remembered how
much Congress can get done when it wants to.
I am most pleased that exactly one week after my remarks, the Congress
responded with passage of the Emergency Home Purchase/ Act of 1974.
Assistance
This bill authorizes the Government National Mortgage Association in
the Department of Housing and Urban Development to make commitments
at predetermined interest rates to purchase mortgages, both on new
and existing homes, which are not Federal Housing Administration
insured or Veterans Administration guaranteed - - the so-called
"conventional" mortgages which comprise about 80% of all mortgages.
The advantage of the plan is that with the GNMA commitment, the
homebuyer, builder and lender have an assured source of financing
at a known, favorable interest rate. The cost to the Government
is limited to the loss which GNMA realizes if its selling price for
a mortgage is less than its original purchase price.
Like most emergency measures, this bill has some minuses.
Notwithstanding the increasing proportion of American families that
choose each year to live in apartments or condominiums, the bill
unfortunately does not cover conventional mortgages for apartment
or condominium projects. Moreover, I had hoped that this help for
the housing industry could be delivered with a minimum inflationary
impact, and I know that the Congress intended the program to be
self-supporting. However, the bill establishes a rigid, illogical
interest ceiling formula that fails to relate interest income to
actual borrowing costs and to cover adequately administrative
costs.
###
October 18, 1974
EMBARGOEFOR RELEASE
UNTIL 10:30 AM, EDT
Office of the White House Press Secretary
THE WHITE HOUSE
STATEMENT BY THE PRESIDENT
It is with great pleasure today that I am signing into law S. 3979, the
Emergency Home Purchase Assistance Act of 1974.
In my remarks to the Joint Session of the Congress on October 8, I
urged the Congress to enact, before recess, additional legislation
to make most home mortgages eligible for purchase by an agency of
the Federal Government. I also remarked that I remembered how
much Congress can get done when it wants to.
I am most pleased that examily one week after my remarks, the Congress
responded with passage of the Emergency Home Purchase Act of 1974.
This bill authorizes the Government National Mortgage Association in
the Department of Housing and Urban Development to make commitments
at predetermined interest rates to purchase mortgages, both on new
and existing homes, which are not Federal Housing Administration
insured for Veterans Administration guaranteed -- the so-called
"conventional" mortgages which comprise about 80% of all mortgages.
The advantage of the plan is that with the GNMA commitment, the
homebuyer, builder and lender have an assured source of financing
at a known, favorable interest rate. The cost to the Government is
limited to the loss which GNMA readizes if its selling price for
a mortgage is less than its original purchase price.
Like most emergency measures, this bill has some minuses.
Notwithstanding the increasing proportion of American families that
choose each year to live in apartments or condominiums, the bill
unfortunately does not cover conventional mortgages for apartment
br condominium projects. Moreover, I had hoped that this help for
the housing industry could be delivered with a minimum inflationary
impact, and I know that the Congress intended the program to be
self-supporting, However, the bill establishes a rigid, illogical
interest celing formula that fails to relate interest income to'
actual borrowing costs and to cover adequately administrative
costs.
October 18, 1974
Office of the White House Press Secretary
THE WHITE HOUSE
that he has appointed Clyde S. DuPont of
The President today announced he has appointed Clyde S. DuPont of
Alexandria, Virginia, to be a Commissioner of the Postal Rate
Commission. He will succeed Rod Kreger, who resigned effective
January 7, 1974.
Since 1969, Mr. DuPont has been Minority Counsel for the Post
Office and Civil Service Committee after having served as a
Professional Staff Member of the Judiciary Committee from
1967 to 1968, From 1964 to 1967, he was Legislative Assistant
to Senator Hiram Fong, after having served as his Research
Assistant and File Clerk since 1960.
He was born on December 28, 1933, in Waialua, Hawaii. He
received his B.S. degree from Brigham Young University in
1959 and his J.D. degree from George Washington University
Law School in February, 1963, He served as a Staffr Sergeant
in the United States Air Force from 1952 to 1956. He is a member
of the District of Columbia Bar Association,
He is married to the former Joan Kimball and they have three
children, They reside in Alexandria, Virginia.
Embargoed for Release Until
October
/ 1974
DRAFT
Office of the White House Press Secretary
THE WHITE HOUSE
STATEMENT BY THE PRESIDENT
It is with great pleasure today that I am signing into law S. 3979,
the "Emergency Home Purchase Assistance Act of 1974".
In my remarks to the Joint Session of the Congress on October 8, I
urged the Congress to enact, before recess, additional legislation
to make most home mortgages eligible for purchase by an agency of
the Federal Government. I also remarked that I remembered how
much Congress can get done when it wants to.
I am most pleased that exactly one week after my remarks, the Congress
responded with passage of the Emergency Home Purchase Assistance Act
of 1974.
This bill authorizes the Government National Mortgage Association in
the Department of Housing and Urban Development to make commitments
at predetermined interest rates to purchase mortgages, both on new
and existing homes, which are not Federal Housing Administration
insured or Veterans Administration guaranteed -- the so-called
"conventional" mortgages which comprise about 80% of all mortgages.
The advantage of the plan is that with the GNMA commitment, the
homebuyer, builder and lender have an assured source of financing
at a known, favorable interest rate. The cost to the Government
is limited to the loss which GNMA realizes if its selling price for
a mortgage is less than its original purchase price.
Like most emergency measures, this bill has some minuses.
Notwithstanding the increasing proportion of American families that
choose each year to live in apartments or condominiums, the bill
unfortunately does not cover conventional mortgages for apartment
or condominium projects. Moreover, I had hoped that this help for
the housing industry could be delivered with a minimum inflationary
impact, and I know that the Congress intended the program to be
self-supporting. However, the bill establishes a rigid, illogical
interest ceiling formula that fails to relate interest income to
actual borrowing costs and to cover adequately administrative
costs.
EMBARGOED FOR RELEASE
OCTOBER 18, 1974
UNTIL 10:30 AM, EDT
Office of the White House Press Secretary
THE WHITE HOUSE
THE EMERGENCY HOME PURCHASE ASSISTANCE ACT OF 1974 (S. 3974)
FACT SHEET
President Ford today signed into law the Emergency Home Purchase
Assistance Act of 1974. The President had urged enactment of similar
legislation in his address to a Joint Session of Congress on October 8th.
The Act extends, on a temporary basis, the advantages offered by the
Government National Mortgage Association (GNMA or Ginnie Mae) to
mortgages which are not Federal Housing Administration (FHA) insured
or Veterans Administration (VA) guaranteed 80 called "conventional"
mortgages. Three billion dollars an amount sufficient to finance
about 100, 000 new homes would be available. The proposed program
will be in addition to the $9. 9 billion FHA/VA tandem programs announced
in January and May and the $3 billion Federal Home Loan Mortgage
Corporation (FHLMC) commentional mortgage purchase program announced
in May
GNMA has aided in creating a supply of credit for mortgages on new homes
insured by FHA or guaranteed by VA by
-- assuring, through commitments in advance, purchase of
mortgages at a pre-determined price.
-- having agreed to a lower-than-market interest rate on the
mortgage at the time such commitment to purchase is made,
subsidizing market interest rates in the event market interest
rates do not fall by the time GNMA purchases the mortgage
pursuant to its commitment.
-- guaranteeing, on a "full faith and credit basis," obligations
secured by such mortgages.
BACKGROUND - HOUS ING INDUSTRY SITUATION CRITICAL
Over the past 23 months
-- housing starts have dropped from 2. 51 million units to 1.12
million units.
-- unemployment in the construction industry is 12. percent
and climbing, with over a half million construction workers
now unemployed.
-- many homebuilders are in severe financial difficulty.
FEATURES OF THE EMERGENCY HOME PURCHASE ASSISTANCE ACT
OF 1974
By making conventional mortgages eligible for purchase by GNMA, builders
and homebuyers will be assisted where home mortgage credit is scarce or
non-existent.
MORE
-2-
1. Level of Commitments. Aggregate amount of commitments and mort-
gages which GNMA could hold at any time, i.e. have purchased and not
resold, could not exceed $7.75 billion. Initial programs aggregating
$3 billion of mortgage commitments, or enough to finance about 100, 000
new homes, is contemplated. Any additional programs will be activated
as circumstances require.
2. Mortgage Amounts, Interest Rates, Fees and Downpayment Require-
ments. The program would provide for a maximum mortgage amount of
$42,000. Under the formula provided by the law, the mortgage interest
rate will be determined on the basis of yields on six to twelve year Treasury
issues for the month preceeding the month in which the GNMA commitments
is made plus one-half of one percent (50 basis points). Under this formula,
the mortgage rate for commitments made in October would be somewhat
above, the rate offered on GNMA tandem programs for FHA/VA mortgages --
presently 8-3/4%. Twenty percent downpayments would be required with
an exception for down to 5% downpayments if the additional mortgage
amount is covered by a qualified private mortgage insurance contract so
as to minimize cost of mortgagor defaults. There will also be a com-
mitment fee and other fees to cover reserves for losses and certain
financing costs.
3. GNMA Disposition of Conventional Mortgages. Following the precedent
of existing law, GNMA could, depending upon market or other factors, sell
mortgages to the Federal National Mortgage Association (FNMA) or
FHLMC, s&ll mortgages with a provision for pooling by FNMA or FHLMC
or other approved issuers and sale by such issuers of GNMA-guaranteed
"pass through" securities or bond type securities on the market or to the
Federal Financing Bank; or issue its own mortgage backed securities for
sale to the Federal Financing Bank.
4. Cost and Budget Implications. Any resulting subsidy would be paid
out of corporate funds and ultimately from Treasury borrowing. Dollar
amount of mortgages purchased would not be excluded from budget outlays,
but would appear as outlays in any fiscal year only to the extent they are
not offset by sales that year. However, any losses on resale -- which
can result if market yields at the time of resale are less than the yield
at which GNMA bought the mortgage, will appear as outlays.
#
#
#
Embargoed for Release until 10:30 am. EDT
October 18, 1974
Coulsen
Office of the White House Press Secretary
THE WHITE HOUSE
THE EMERGENCY HOME PURCHASE ASSISTANCE ACT OF 1974 (5.3979)
FACT SHEET
President Ford today signed into law the Emergency Home Purchase Assistance
Act of 1974. The President had urged enactment of similar legislation in
his address to a Joint Session of Congress on October 8th.
The Act extends, on a temporary basis, the advantages offered by the
Government National Mortgage Association (GNMA or Ginnie Mae) to mortgages
which are not Federal Housing Administration (FHA) insured or Veterans
Administration (VA) guaranteed -- so called "conventional" mortgages.
Three billion dollars -- an amount sufficient to finance about 100, 000 new
homes -- would be available. The proposed program will be in addition to
the $9. 9 billion FHA/VA tandem programs announced in January and May
and the $3 billion Federal Home Loan Mortgage Corporation (FHLMC)
conventional mortgage purchase program announced in May.
GNMA has aided in creating a supply of credit for mortgages on new homes
insured by FHA or guaranteed by VA by
-- assuring, through commitments in advance, purchase of
mortgages at a pre-determined price.
having agreed to a lower-than-market interest rate on the
mortgage at the time such commitment to purchase is
made, subsidizing market interest rates in the event
market interest rates do not fall by the time GNMA purchases
the mortgage pursuant to its commitment.
(cops)
guaranteeing, on a "full faith and credit basis, obligations
secured by such mortgages.
BACKEROUND
Housing Industry Situation Critical.
Over the past 23 months
-- housing starts have dropped from 2. 51 million units to
1. 12 million units.
unemployment in the construction industry is 12. 4 percent
and climbing, with over a half million construction
workers now unemployed.
many homebuilders are in severe financial difficulty.
FEATURES
-OR
The Emergency Home Purchase Assistance Act of 1974
By making conventional mortgages eligible for purchase by GNMA,
builders and homebuyers will be assisted where home mortgage credit is
scarce or non-existent.
1.
Level of Commitments. Aggregate amount of commitments and mortgages
which GNMA could hold at any time, i.e. have purchased and not resold, could
not exceed $7. 75 billion. Initial programs aggregating $3 billion of mortgage
more
2
commitments, or enough to finance about 100, 000 new homes, is contemplated.
Any additional programs will be activated as circumstances require.
2.
Mortgage Amounts, Interest Rates, Fees and Downpayment Requirements.
The program would provide for a maximum mortgage amount of $42, 000.
Under the formula provided by the law, the mortgage interest rate will be
determined on the basis of yields on six to twelve year Treasury issues for the
month preceding the month in which the GNMA commitment is made plus
one-half of one percent (50 basis points). Under this formula, the mortgage
rate for commitments made in October would be somewhat above the rate
offered on GNMA tandem programs for FHA/VA mortgages -- presently
8-3/4%. Twenty percent downpayments would be required with an exception
for down to 5% downpayments if the additional mortgage amount is covered
by a qualified private mortgage insurance contract so as to minimize cost
of mortgagor defaults. There will also be a commitment fee and other fees
to cover reserves for losses and certain financing costs.
3.
GNMA Disposition of Conventional Mortgages. Following the precedent
of existing law, GNMA could, depending upon market or other factors, sell
mortgages to the Federal National Mortgage Association (FNMA) or FHLMC,
sell mortgages with a provision for pooling by FNMA or FHLMC or other approved
issuers and sale by such issuers of GNMA-guaranteed "pass through"
securities or bond type securities on the market or to the Federal Financing
Bank; or issue its own mortgage backed securities for sale to the Federal
Financing Bank.
4.
Cost and Budget Implications. Any resulting subsidy would be paid out
of corporate funds and ultimately from Treasury borrowing. Dollar amount of
mortgages purchased would not be excluded from budget outlays, but would
appear as outlays in any fiscal year only to the extent they are not offset by
sales that year. However, any losses on resale -- which can result if
market yields at the time of resale are less than the yield at which GNMA
bought the mortgage, will appear as outlays.
Calendar No. 1164
93D CONGRESS
SENATE
REPORT
2d Session
No. 93-1223
HOME PURCHASE ASSISTANCE ACT OF 1974
OCTOBER 3, 1974.-Ordered to be printed
Mr. PROXMIRE, from the Committee on Banking, Housing and
Urban Affairs, submitted the following
REPORT
together with
MINORITY VIEWS
[To accompany S. 3979]
The Committee on Banking, Housing and Urban Affairs, to which
was referred the bill (S. 3979) to increase the availability of reason-
ably priced mortgage credit for home purchases, having considered the
same, reports favorably thereon with amendments and recommends
that the bill as amended do pass.
COMMITTEE DELIBERATIONS
The bill, S. 3979, was introduced by Senators Cranston and Brooke
on September 10, 1974, and was referred to the Committee on Bank-
ing, Housing and Urban Affairs. The bill was a consolidation of two
bills-S. 3436, introduced by Senator Brooke on May 2, 1974, and
S. 3456, introduced by Senator Cranston on May 8, 1974-both of
which were referred to the Committee on Banking, Housing and
Urban Affairs. The Committee held hearings on the two bills on Au-
gust 6 and 7, 1974.
On September 24, 1974, the Committee on Banking, Housing and
Urban Affairs met in open executive session and ordered S. 3979, as
amended, to be reported to the Senate.
BACKGROUND
S. 3979 responds to a mortgage credit crisis which has crippled the
residential real estate industry in the United States. Housing ac-
tivity in the Nation is severely depressed. In August 1974, housing
starts dropped to an annualized rate of 1.13 million, and 1974 produc-
38-008
2
tion is not expected to exceed 1.4 million units. This compares with
2.06 million starts in 1973 and 2.38 million in 1972. Building permits
issued in August at an annual rate of 912,000, a 71/2-year low.
This sharp reduction in housing production has been especially hard
on the 1.5 million new households formed each year mostly by younger
persons who are experiencing increasing difficulty finding a place to
live at a price they can afford. New housing construction in the United
States is failing to offset the estimated 700,000 units of housing that
are removed from the housing stock each year due to public and pri-
vate construction, natural disasters, and physical deterioration. As a
result, rental vacancy rates have fallen in many metropolitan areas,
and housing supply is likely to become even more tight in the months
ahead.
The decline in housing production has had adverse effects not only
on consumer, but also on construction workers and homebuilding firms.
In August 1974, almost 500,000 construction workers, or 11.1 percent
of the working force in these trades, were unemployed. The waste of
these valuable human resources, the drain on the public treasury for
increased payments of unemployment compensation, and the personal
hardships created by this high rate of unemployment are all matters
of serious concern to the Committee.
Bankruptcies and business closings in the homebuilding industry are
expected to reach record levels in 1974 according to trade association
officials. Further, the slowdown in housing construction is beginning to
be felt in the appliance and home furnishing industries, as reflected
by worker layoffs in those sectors.
The current shortage of funds to finance housing transactions began
in the middle of 1973. Home borrowers must compete in the market-
place with other users of capital, including business firms and Federal,
State, and local governments. Borrowings by business corporations rose
substantially in 1973 in order to finance increases in inventories and
capital plant and equipment. The prime rate charged by commercial
banks to their most credit-worthy customers rose sharply in the latter
half of 1973. The Federal Reserve Board, in an effort to slow the
growth of private borrowing and dampen rising prices, raised its dis-
count rate and took other measures to tighten up on credit.
The effect of these actions on the home mortgage market, which
is particularly vulnerable to sharp, upward swings in the price of
money, was dramatic. Interest rates moved from the level of 7.5 per-
cent to 10 percent or more in many areas. The price of mortgage money
rose above the ceilings imposed by State usury laws, bringing mort-
gage lending to a halt in some parts of the country. Downpayment
requirements for home purchases have been increased in those areas
where mortgage credit is available.
Sales of existing homes have also fallen sharply in some areas as
potential buyers were turned down by lenders or have encountered
prohibitive interest rates and terms. Families transferred from one
city to another are left in the difficult position of being unable to sell
their old homes or to buy new ones.
EXPLANATION OF LEGISLATION
S. 3979 would provide emergency relief to the credit-starved resi-
dential mortgage market. Under the bill whenever the Secretary of
S.R. 1223
3
Housing and Urban Development determines (1) that a substantial
number of families are unable to obtain mortgage credit at reasonable
rates and (2) that the inability to obtain such credit is causing a sub-
stantial reduction in the volume of home construction and acquisition
and is delaying the orderly achievement of the national housing goals,
he is to direct the Government National Mortgage Association
(GNMA) to make commitments to purchase and to purchase mort-
gages under the conditions set forth in the bill.
Money to finance the purchase of mortgages would be obtained from
a housing trust fund to be established in the Government National
Mortgage Association (GNMA), the secondary mortgage market
component of the Department of Housing and Urban Development.
This trust fund would be financed by borrowings of up to $10 billion
dollars per year from the Secretary of the Treasury. All funds bor-
rowed from the Treasury would be repayable with interest. Receipts
and disbursements of the fund would not be included in the totals of
the Budget of the United States Government and would be exempt
from any annual expenditure or net lending limitations imposed on
the budget of the United States Government. As security on its loans
the Government will hold mortgages which involve substantial down-
payments (20%), or are insured by FHA or an approved private in-
surer, or are guaranteed by the Veterans' Administration or the Farm-
ers Home Administration.
Because commitments to purchase mortgages will be met by GNMA
over a period of many months, the Secretary of the Treasury will not
be called upon to borrow all of the funds authorized under this bill
at any one time. However, adding another $10 billion to total demand
for capital funds will put some pressure on interest rates generally.
The actual rise in interest costs will depend upon the state of the
economy and fiscal and monetary policies being pursued at the time
the Treasury goes into the money markets. It should be noted that as
the economy grows, the capacity to generate loanable funds also grows.
The housing industry, presently the most depressed sector in the econ-
omy, is a high-priority claimant for some of this expected increment
in capital funds due to normal growth.
GNMA may sell mortgages acquired under the bill at any time
at a price not less than the unpaid principal at the time of sale.
Not less than 50% nor more than 55% of the funds made available
under the bill could be used to finance the purchase of newly con-
structed homes and the remainder of the funds could finance the pur-
chase of existing homes. All of the homes purchased with mortgages
financed under the provisions of the bill must be the principal resi-
dence of the buyer.
The bill imposes a limit of $30,000 on the purchase price of homes
purchased with mortgages financed by the housing trust fund. How-
ever, that limit may be raised up to $45,000 in high cost areas. It is
not the intention of the Committee that the Secretary of HUD set a
maximum ceiling of $45,000 in all areas of the country by making a
finding that in all areas cost levels require a higher ceiling. The
Committee expects the Secretary to set area by area ceilings ranging
up to $45,000 taking into account differences in housing supply and
cost of production which exist in different areas of the country. The
Committee expects the Secretary to be realistic in his determination
S.R. 1223
4
of high cost areas, giving full consideration to past and expected cost
increases.
Mortgages originated under the program set forth in S. 3979 will
bear an interest rate sufficient to reimburse GNMA for the cost of
borrowing funds from the Secretary of the Treasury plus adminis-
trative costs. No points, discounts, or similar charges would be assessed
against either the buyer or the seller. Mortgages could be purchased
by GNMA at a price not in excess of 101 percent of the unpaid princi-
pal at the time of purchase.
The Committee is concerned that only about $4 billion out of a
potential $9.9 billion in mortgage credit which has been made avail-
able through GNMA over the last year has been used to make commit-
ments to purchase or purchase mortgages. A principal impediment, it
is reported, is that builders and sellers are required to pay as much as
four points for the loans, which translates into $1,200 on a $30,000
mortgage. S. 3979 would profit the assessment of points, discounts, or
similar charges against buyers or sellers in connection with.mortgages
financed through the housing trust fund.
While the Committee has included FHA and VA mortgages under
S. 3979, the Committee expects that GNMA will continue to imple-
ment the present tandem plans which finance the purchase of homes
with FHA and VA mortgages at the same time as it. implements
S. 3979.
SECTION-BY-SECTION ANALYSIS
The Committee bill is divided into three sections.
Section 1 cites the bill as the "Home Purchase Assistance Act of
1974".
Section 2 establishes findings of Congress that: (1) in many parts
of the Nation, residential mortgage credit is likely soon to become
prohibitively expensive or unavailable at any price; (2) the unavail-
ability of mortgage credit severely restricts housing production, causes
hardship for those who wish to purchase or sell existing housing and
delays the orderly achievement of the national goal of a decent home
for every American family; and (3) there is an urgent need to provide
an alternate source of residential mortgage credit on an emergency
basis.
Section 3 amends Title III of the National Housing Act and adds
a new section entitled the "Housing Trust Fund" as section 313.
Section 313 (a) (1) creates a National Housing Trust Fund from
which the Secretary of HUD could make direct loans whenever the
Secretary determines that a substantial number of families are unable
to obtain mortgage credit at reasonable rates due to high interest rates
or reduced availability of mortgage credit and that the inability to
obtain such credit is causing or threatening to cause a substantial re-
duction in the volume of home construction or acquisition and is delay-
ing the orderly achievement of the national housing goals contained
in title XVI of the Housing and Urban Development Act of 1968.
The housing goals contained in the 1968 Act call for the construction of
an average of 26 million housing units a year over à ten year period;
six million of these for low and moderate income families. The 1968
act also reaffirms the national housing goal of a decent home and suit-
able living environment for every American family.
S.R. 1223
5
When the above situation exists it is mandatory that the Govern-
ment National Mortgage Association make commitments to purchase
and to purchase mortgages in accordance with the provisions of sec.
313.
Section 313 (a) (2) provides that the Secretary of HUD may direct
the GNMA to terminate its activities under this section whenever he
determines that the conditions which gave rise to his determination
under section 313 (1) are no longer present.
Section 313(a) (3) provides that the Secretary of HUD shall issue
regulations to carry out the provisions of this bill not later than 60
days after enactment and that such regulations shall be published
in the Federal Register.
Section 313 (b) provides that the Government National Mortgage
Association shall make commitments to purchase and purchase mort-
gages which are FHA insured, VA guaranteed, privately insured,
or noninsured if they have a loan-to-value ratio of less than 80 per-
cent. Mortgages may be purchased under this section only if: (1)
such mortgage is to finance the acquisition of the T100 principal residence
of the mortgagor; (2) such mortgage involves the acquisition or con-
struction of a residential dwelling whose purchase price does not exceed
$30,000 and up to $45,000 in high cost areas as determined by the
Secretary; (3) the interest rate is not to exceed that necessary to
reimburse the fund for its expenses; (4) no points, discounts or similar
charges are to be assessed against the prospective buyer or seller in
connection with the mortgage.
Section 313 (c) provides that the Government National Mortgage
Association may borrow funds from the Treasury to finance the
activities of the Trust Fund and pay the Treasury an interest rate
based on the rates on outstanding long-term marketable U.S. obli-
gations. The GNMA would repay the Treasury at the cost of money
to the government under this section.
Section 313 (d) provides that the Housing Trust Fund cannot com-
mit to purchase more than $10 billion dollars in mortgages in any
single fiscal year.
Section 313 (e) provides that not less than 50% or more than 55
percent of the homes purchased under this act shall involve resi-
dences upon which construction has been completed within the twelve
months preceding the date of purchase, all other housing purchases
under this act shall be existing housing.
Section 313 (f) authorizes the Government National Mortgage As-
sociation to: (1) establish and charge a fee for making commitments
to purchase; (2) purchase mortgages at a price not greater than 101
per cent; (3) contract with mortgagees or other persons to service
mortgages under this section (4) sell such mortgages at any time at
a price not less than the unpaid principal at the time of sale; (5)
deposit proceeds from the sale of mortgages into the Trust Fund; and
(6) invest any excess amounts in the fund in obligations of the United
States.
Section 313 (g) provides that loan disbursements and repayments
under this section would be excluded from the federal budget since
all loans are fully repayable to the Treasury at the rate of cost to
the government of borrowing the money.
S.R. 1223
6
Section 313 (h) requires the Secretary to transmit to the Congress
not later than March 15 of each year a report on his activities under
this section.
COST OF CARRYING OUT THE BILL
In compliances with Section 252 of the Legislative Reorganization
Aot, the Committee reports that it is not feasible to estimate with pre-
cision the cost of carrying out the provisions of this bill. The com-
mittee believes, however, that it is unlikely there will be a net cost
to the U.S. Treasury over the life of the program after taking into
consideration the additional tax revenues generated from the increase
in residential construction activity stimulated by the legislation.
CORDON RULE
In the opinion of the Committee, it is necessary to dispense with
the requirements of subsection 4 of Rule XXIX of the Standing Rules
of the Senate in order to expedite the business of the Senate in con-
nection with the report.
S.R. 1223
MINORITY VIEWS OF MESSRS. TOWER, BENNETT, AND
BROCK
There is no doubt but that the housing industry is in a depressed
state. All. industries are short of capital, including State and local
governments, but it is true that housing is proportionately worse off
than the others.
However, a vote for this bill is a vote for continued inflation. Con-
gress, however, has not been deaf to the problems of the housing in-
dustry. In fact, we have provided several avenues of assistance to the
housing industry in the past several months. In addition to the $1.22
billion provided for public housing for lower income families in the
recently signed Housing and Community Development Act of 1974,
since January 28, 1974, the Administration has made a total of $16.9
billion available to the mortgage market at subsidized rates. This
means that over $18 billion worth of mortgages (or $20 billion of
housing construction) has been made available since the start of this
year. This bill would add another $10 billion to make a total approach-
ing $30 billion-these figures do not even include the vast sums of non-
subsidized mortgages provided by FNMA, FHLMC, and GNMA.
Providing an additional $10 billion-or whatever lesser amount-
for housing will simply increase the Federal deficit by that amount.
From an economic point of view, it does not make any difference
whether we specify that the additional $10 billion should be in or out
of the budget. As far as the economy is concerned, and as far as other
borrowers on the market are concerned, the effect is the same. For
every dollar in this bill, we will be increasing the "Federal deficit"
for this year by a like amount.
Although some form of additional assistance may be necessary for
the housing market, we must keep in mind that buying a mortgage has
the same effect as buying any other commodity by the government.
One simply cannot distinguish from an inflationary or a budget deficit
point of view the difference between the government's buying a private
individual's house (represented by a mortgage) or the government's
purchase of military bases, agricultural stockpiles, commodities stock-
piles or hospitals.
The government this year will usurp roughly one-half our Nation's
capital market either by direct Treasury borrowings, agency borrow-
ings or guarantees. If we do not stop this government encroachment
of our private capital markets, we will soon witness the day when the
government will simply borrow all the money created by our free
enterprise system and will allocate it by government fiat rather than
by free market system.
(7)
S.R. 1223
8
Certainly housing needs to be helped to some degree, and perhaps
even more assistance needs to be provided in addition to the massive
efforts already undertaken. However, a $10 billion purchase of mort-
gages each and very year in perpetuity is not the way to help housing
nor stop inflation.
If we are to provide a quick "shot in the arm" to the housing in-
dustry, there are administratively more efficient and less cumbersome
methods to utilize. If we are to initiate a permanent program to pro-
vide a continued flow of mortgage funds at a reasonable interest rate,
approval of this proposal would be a step backwards.
A vote for this bill is a vote for continued inflation, higher interest
rates, and higher housing costs.
JOHN TOWER.
WALLACE F. BENNETT.
BILL BROCK.
S.R. 1223
S. 3979
Ainety-third Congress of the United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Monday, the twenty-first day of January,
one thousand nine hundred and seventy-four
An Art
To increase on an emergency basis the availability of reasonably priced mortgage
credit for housing.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SHORT TITLE
SECTION 1. This Act may be cited as the "Emergency Home Purchase
Assistance Act of 1974".
FINDINGS
SEC. 2. The Congress finds and declares that-
(1) in many parts of the Nation, residential mortgage credit is
or is likely soon to become prohibitively expensive or unavailable
at any price;
(2) the unavailability of mortgage credit severely restricts
housing production, causes hardship for those who wish to pur-
chase or sell new and existing housing, and delays the achieve-
ment of the national goal of a decent home for every American
family; and
(3) there is an urgent need to provide an alternate source of
residential mortgage credit on an emergency basis.
INTERIM AUTHORITY
SEC. 3. (a) Title III of the National Housing Act is amended by
adding at the end thereof the following new section:
"INTERIM AUTHORITY TO PURCHASE CERTAIN MORTGAGES
"SEC. 313. (a) (1) Whenever the Secretary finds inflationary condi-
tions and related governmental actions are having a severely dispro-
portionate effect on the housing industry and the resulting reduction
in the volume of home construction or acquisition threatens seriously
to affect the economy and to delay the orderly achievement of the
national housing goals contained in title XVI of the Housing and
Urban Development Act of 1968, the Secretary shall direct the Asso-
ciation to begin making commitments to purchase and to purchase
mortgages in accordance with the provisions of this section.
"(2) The Secretary may direct the Association to terminate its activ-
ities under this section whenever he determines that the conditions
which gave rise to his determination under paragraph (1) are no
longer present.
(b) Whenever the Secretary issues a directive under subsection (a)
(1), the Association shall make commitments to purchase and pur-
chase, and may service, sell (with or without recourse), or otherwise
deal in, mortgages (1) which cover more than four-family residences
(including cooperatives and condominiums and the individual units
therein) and which are insured under the National Housing Act and
chapter 37 of title 38 of the United States Code, or (2) which cover one-
to four-family residences and which are insured under the National
Housing Act or guaranteed under chapter 37 of title 38 of the United
States Code or by qualified private insurers as determined by the Asso-
ciation or the outstanding principal balances of which do not exceed 80
CORRECTE
S. 3979-2
per centum of the value of the property securing the mortgages. A
mortgage may be purchased under this section only if-
(A) such mortgage was executed to finance the acquisition of a
one- to four-family residence which will be the principal residence
of the mortgagor or to finance the purchase of a more than four-
family residence and is subject to a mortgage insured under the
National Housing Act;
((B) such mortgage involves an original principal obligation
not to exceed $42,000 per family residence or dwelling unit, and
except that the original principal obligation may not exceed
$55,000 in the case of properties in Alaska, Hawaii, and Guam;
"(C) such mortgage involves an interest rate or yield not in
excess of that which the Secretary may prescribe, taking into
account the cost of funds and administrative costs under this sec-
tion, the importance of making mortgage credit available on rea-
sonable terms, and current conditions in the mortgage market,
but in no event shall such rate exceed a rate equal to the average
yield during the month preceding the month in which a com-
mitment to purchase such mortgage was issued on all marketable
bonds of the United States maturing in more than six but less than
twelve years from the date of such commitment (exclusive of
bonds with a coupon rate of less than 6 per centum) plus one-half
of 1 per centum, adjusted upward to the nearest one-eighth of 1
per centum and taking into account the need to assure that the
funds are available in all States pursuant to any maximum mort-
gage interest rate permitted under the laws or constitutions of the
various States and, notwithstanding any State law or constitu-
tion to the contrary, discount points and other charges collected
in connection with mortgage transactions under this section and
recognized by the Association shall not be considered in deter-
mining whether the interest rate on any. such mortgage exceeds
any State usury ceiling.
"(c) The Association may issue to the Secretary of the Treasury
its obligations in an amount outstanding at any one time sufficient
to enable the Association to carry out its functions under this section.
Each such obligation shall mature at such time and be redeemable at
the option of the Association in such manner as may be determined by
the Association, and shall bear interest at a rate determined by the Sec-
retary of the Treasury, taking into consideration the current average
yield on outstanding marketable obligations of the United States of
comparable maturities during the month preceding the issuance of
the obligation of the Association. The Secretary of the Treasury is
authorized and directed to purchase any obligations of the Association
issued under this section, and for such purposes the Secretary of the
Treasury is authorized to use as a public debt transaction the proceeds
from the sale of any securities issued under the Second Liberty Bond
Act, as now or hereafter in force, and the purposes for which securities
may be issued under the Second Liberty Bond Act, as now or hereafter
in force, are extended to include any purchase of the Association's
obligations hereunder.
(d) (1) The Association is authorized to guarantee securities based
on pools or trusts of the mortgages purchased by the Association under
this section as provided in section 306(g) of this Act with respect to
federally insured or guaranteed mortgages and to act as issuer of such
S. 3979-3
guaranteed securities. The Association shall possess with respect to
securities under this section all the powers it possesses with respect to
securities guaranteed under such section 306 (g), and the provisions of
such section shall apply to guarantees under this section, except that
such section shall not be deemed to prohibit the Secretary from
guaranteeing payment of only a part of the principal and interest on
securities issued under the provisions of this section.
"(2) The Association may offer and sell any securities guaranteed
under this subsection to the Federal Financing Bank, and such Bank
is authorized to purchase any securities SO offered. The Association
may also offer and sell any securities guaranteed under this subsection
to any Federal Reserve bank. The proceeds from the sale of such
securities when issued by the Association shall be treated in the
accounts in the same manner as if such proceeds were from the sale of
the underlying mortgages.
"(e) The Secretary may make available a portion of his authority
under this section to purchase mortgages covering housing which has
been constructed more than twelve months prior to enactment of this
section in areas where he determines that there is a serious shortage
of mortgage credit to purchase such housing.
"(f) The Association is authorized to-
"(1) sell mortgages purchased under this section of prices
which it determines will help promote the objective of assuring
that operations under this section are; to the extent feasible, fully
self-supporting;
"(2) pay for services performed in carrying out its functions
under this section without regard to any limitation on adminis-
trative expenses heretofore enacted.
"(g) The total amount of purchases and commitments authorized
by the Secretary to be made pursuant to this section shall not exceed
$7,750,000,000 outstanding at any one time.".
(b) The amendment made by subsection (a) becomes effective upon
the date of enactment of this Act and shall remain in effect for a
period of one year following such date of enactment, except that it
shall remain in effect after the expiration of such period to the extent
necessary (1) to honor commitments to purchase mortgages issued
prior to the expiration of such period, and (2) to provide for the
liquidation of assets and discharge of liabilities acquired or incurred
prior to the expiration of such period.
AMENDMENTS TO OTHER LAWS
SEC. 4. (a) The National Housing Act is amended as follows:
(1) The first sentence of section 2(a) of such Act is amended by
inserting before the period at the end thereof the following: "; and
for the purpose of financing the preservation of historic structures,
and, as used in this section, the term 'historic structures' means resi-
dential structures which are registered in the National Register of
Historic Places or which are certified by the Secretary of the Interior
to conform to National Register criteria; and the term 'preservation'
means restoration or rehabilitation undertaken for such purposes as
are approved by the Secretary in regulations issued by him, after con-
sulting with the Secretary of the Interior".
(2) Section 2(b) of such Act is amended by adding at the end
thereof the following new paragraph:
CORRECTED
S. 3979-4
"A loan financing the preservation of a historic structure shall-
"(1) involve an amount not exceeding $15,000 per family unit;
and
"(2) have a maturity not exceeding fifteen years and thirty-two
days.".
(b) Section 203 of the National Housing Act is amended by adding
at the end thereof the following:
"(n) (1) The Secretary is authorized to insure under this section
any mortgage meeting the requirements of subsection (b) of this
section, except as modified by this subsection. To be eligible, the mort-
gage shall involve a dwelling unit in a cooperative housing project
which is covered by a blanket mortgage insured under this Act. The
mortgage amount as determined under the other provisions of sub-
section (b) of this section shall be reduced by an amount equal to
the portion of the unpaid balance of the blanket mortgage covering
the project which is attributable (as of the date the mortgage is
accepted for insurance) to such unit.
(2) For the purpose of this subsection-
"(A) The terms 'home mortgage' and 'mortgage' include a
first lien given (in accordance with the laws of the State where
the property is located and accompanied by such security and
other undertakings as may be required under regulations of the
Secretary) to secure a loan made to finance the purchase of stock
or membership in an nonprofit cooperative ownership housing
corporation the permanent occupancy of the dwelling units of
which is restricted to members of such corporation, where the
purchase of such stock or membership will entitle the purchaser
to the permanent occupancy of one of such units.
"(B) The terms 'appraised value of the property', 'value of
the property', and 'value' include the appraised value of a dwell-
ing unit in a cooperative housing project of the type described in
subparagraph (A) where the purchase of the stock or member-
ship involved will entitle the purchaser to the permanent occu-
pancy of that unit; and the term 'property' includes a dwelling
unit in such a cooperative project.
"(C) The term 'mortgagor' includes a person or persons giv-
ing a first lien (of the type describe in subparagraph (A)) to
secure a loan to finance the purchase of stock or membership in a
cooperative housing corporation."
(c) Section 10(b) of the Federal Home Loan Bank Act (12 U.S.C.
1430(b)), as amended, is amended by striking the dollar figure
"$40,000" and inserting in lieu thereof "$55,000 (except that with
respect to dwellings in Alaska, Guam, and Hawaii the foregoing
limitation may, by regulation of the Board, be increased by not to
exceed 50 per centum) "
(d) Section 5(c) of the Home Owners' Loan Act of 1933 (12 U.S.C.
1464 as amended, is amended by adding in the nineteenth para-
graph thereof after the phrase "section 401 (d) the following phrase:
"or section 408(a)".
(e) Section 5 of Public Law 93-387 is amended to read "The Coun-
cil shall report to the President, and through him to the Congress, on a
quarterly basis and not later than thirty days after the close of each
calendar quarter, concerning its activities, findings, and recommenda-
tions with respect to the containment of inflation and the maintenance
of a vigorous and prosperous peacetime economy.".
S. 3979-5
FEDERAL RESERVE ACT AMENDMENT
SEC. 5. Section 10(b) of the Federal Reserve Act is amended by add-
ing the following at the end thereof:
"Notwithstanding the foregoing, any Federal Reserve bank, under
rules and regulations prescribed by the Board of Governors of the Fed-
eral Reserve System, may make advances to any member bank on its
time notes having such maturities as the Board may prescribe and
which are secured by mortgage loans covering a one-to-four family
residence. Such advances shall bear interest at a rate equal to the lowest
discount rate in effect at such Federal Reserve bank on the date of such
note.".
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.
EMBARGOED FOR RELEASE
OCTOBER 18, 1974
UNTIL 10:30 AM, EDT
Office of the White House Press Secretary
THE WHITE HOUSE
THE EMERGENCY HOME PURCHASE ASSISTANCE ACT OF 1974 (S. 3979)
FACT SHEET
President Ford today signed into law the Emergency Home Purchase
Assistance Act of 1974. The President had urged enactment of similar
legislation in his address to a Joint Session of Congress on October 8th.
The Act extends, on a temporary basis, the advantages offered by the
Government National Mortgage Association (GNMA or Ginnie Mae) to
mortgages which are not Federal Housing Administration (FHA) insured
or Veterans Administration (VA) guaranteed -- so called "conventional"
mortgages. Three billion dollars an amount sufficient to finance
about 100, 000 new homes -- would be available. The proposed program
will be in addition to the $9. 9 billion FHA/VA tandem programs announced
in January and May and the $3 billion Federal Home Loan Mortgage
Corporation (FHLMC) conventional mortgage purchase program announced
in May.
GNMA has aided in creating a supply of credit for mortgages on new homes
insured by FHA or guaranteed by VA by
-- assuring, through commitments in advance, purchase of
mortgages at a pre-determined price.
-- having agreed to a lower-than-market interest rate on the
mortgage at the time such commitment to purchase is made,
subsidizing market interest rates in the event market interest
rates do not fall by the time GNMA purchases the mortgage
pursuant to its commitment.
guaranteeing, on a "full faith and credit basis, obligations
secured by such mortgages.
BACKGROUND - HOUS ING INDUSTRY SITUATION CRITICAL
Over the past 23 months
-- housing starts have dropped from 2. 51 million units to 1. 12
million units.
unemployment in the construction industry is 12. 4 percent
and climbing, with over a half million construction workers
now unemployed.
-- many homebuilders are in severe financial difficulty.
FEATURES OF THE EMERGENCY HOME PUR CHASE ASSISTANCE ACT
OF 1974
By making conventional mortgages eligible for purchase by GNMA, builders
and homebuyers will be assisted where home mortgage credit is scarce or
non-existent.
MORE
-2-
1. Level of Commitments. Aggregate amount of commitments and mort-
gages which GNMA could hold at any time, i.e. have purchased and not
resold, could not exceed $7. 75 billion. Initial programs aggregating
$3 billion of mortgage commitments, or enough to finance about 100, 000
new homes, is contemplated. Any additional programs will be activated
as circumstances require.
2. Mortgage Amounts, Interest Rates, Fees and Downpayment Require-
ments. The program would provide for a maximum mortgage amount of
$42,000. Under the formula provided by the law, the mortgage interest
rate will be determined on the basis of yields on six to twelve year Treasury
issues for the monthpreceeding the month in which the GNMA commitments
is made plus one-half of one percent (50 basis points). Under this formula,
the mortgage rate for commitments made in October would be somewhat
above, the rate offered on GNMA tandem programs for FHA/VA mortgages -
presently 8-3/4%. Twenty percent downpayments would be required with
an exception for down to 5% downpayments if the additional mortgage
amount is covered by a qualified private mortgage insurance contract so
as to minimize cost of mortgagor defaults. There will also be a com-
mitment fee and other fees to cover reserves for losses and certain
financing costs.
3. GNMA Disposition of Conventional Mortgages. Following the precedent
of existing law, GNMA could, depending upon market or other factors, sell
mortgages to the Federal National Mortgage Association (FNMA) or
FHLMC, sell mortgages with a provision for pooling by FNMA or FHLMC
or other approved issuers and sale by such issuers of GNMA-guaranteed
"pass through" securities or bond type securities on the market or to the
Federal Financing Bank; or issue its own mortgage backed securities for
sale to the Federal Financing Bank.
4. Cost and Budget Implications. Any resulting subsidy would be paid
out of corporate funds and ultimately from Treasury borrowing. Dollar
amount of mortgages purchased would not be excluded from budget outlays,
but would appear as outlays in any fiscal year only to the extent they are
not offset by sales that year. However, any losses on resale -- which
can result if market yields at the time of resale are less than the yield
at which GNMA bought the mortgage, will appear as outlays.
#
#
#
FOR IMMEDIATE RELEASE
OCTOBER 18, 1974
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
REMARKS OF THE PRESIDENT
AT THE
SIGNING OF S. 3979
THE EMERGENCY HOME PURCHASE
ASSISTANCE ACT OF 1974
THE CABINET ROOM
10:36 A.M. EDT
Let me at the outset express my appreciation
to the Congress for responding so quickly, and I think
basically so well, in passing this housing legislation,
which is needed for an industry that is in serious
trouble.
We cannot tolerate a building program at the
present rate for home building. And this legislation,
which the Congress has passed, will materially help,
in my judgment, in turning the corner as far as the
housing industry is concerned.
It is not new, and other things have to be
done, but it will provide a shot in the arm for the
housing industry. I regret, of course, that it didn't
include condominiums and apartments, but be that as
it may, it is good legislation. We will make it work.
I wish there was a little more flexibility in
one or two of the provisions, but nevertheless,
considering the time factor, I compliment the Congress
for moving so quickly and particularly Senator Cranston
and Senator Brooke, who were instrumental in the first
instance, but I think the credit goes to the Congress
as a whole in moving ahead so rapidly at a time when
the housing industry needed help.
So, it is a privilege and a pleasure for me to
sign this bill in the presence of a number of Members
who had a very major factor in making this possible.
I do thank you all very, very much. As I said,
we are going to move ahead, I hope, in some other
areas, and we will get a lot more homes built.
Thank you all for being here.
MORE
Page 2
I should have said the Secretary is going to
start implementing, I think, this next Tuesday. I do
want to compliment the Secretary, who I think worked
with the Congress and did a fine job in moving with
the Congress and getting it through, and now he is
going to make it work.
Thank you.
END
(AT 10:40 A.M. EDT)
FOR IMMEDIATE RELEASE
October 18, 1974
Office of the White House Press Secretary
THE WHITE HOUSE
STATEMENT BY THE PRESIDENT
It is with great pleasure today that I am signing into law S. 3979, the
Emergency Home Purchase Assistance Act of 1974.
In my remarks to the Joint Session of the Congress on October 8, I
urged the Congress to enact, before recess, additional legislation
to make most home mortgages eligible for purchase by an agency of
the Federal Government. I also remarked that I remembered how
much Congress can get done when it wants to.
I am most pleased that exactly one week after my remarks, the Congress
responded with passage of the Emergency Home Purchase Assistance Act of 1974.
This bill authorizes the Government National Mortgage Association in
the Department of Housing and Urban Development to make commitments
at predetermined interest rates to purchase mortgages, both on new
and existing homes, which are not Federal Housing Administration
insured or Veterans Administration guaranteed -- the so-called
"conventional" mortgages which comprise about 80% of all mortgages.
The advantage of the plan is that with the GNMA commitment, the
homebuyer, builder and lender have an assured source of financing
at a known, favorable interest rate. The cost to the Government is
limited to the loss which GNMA realizes if its selling price for
a mortgage is less than its original purchase price.
Like most emergency measures, this bill has some minuses.
Notwithstanding the increasing proportion of American families that
choose each year to live in apartments or condominiums, the bill
unfortunately does not cover conventional mortgages for apartment
or condominium projects. Moreover, I had hoped that this help for
the housing industry could be delivered with a minimum inflationary
impact, and I know that the Congress intended the program to be
self-supporting. However, the bill establishes a rigid, illogical
interest ceiling formula that fails to relate interest income to
actual borrowing costs and to cover adequately administrative
costs.
#
#
#
October 17, 1974
Dear Mr. Director:
The following bills were received at the White House on
October 17th:
S.J. Res. 236
S. 2840
H.R. 7768
H.R. 14225
S.J. Res. 250
S. 3007
H.R. 7780
H.R. 14597
S.J. Res. 251
S. 3234
H.R. 11221
H.R. 15148
S. 355
S. 3473
H.R. 11251
H.R. 15427
S. 605
S. 3698
H.R. 11452
H.R. 15540
S. 628
S. 3792
H.R. 11830
H.R. 15643
S. 1411
S. 3838
H.R. 12035
H.R. 16857
S. 1412
S. 3979
H.R. 12281
H.R. 17027
S. 1769
H.R. 6624
H.R. 13561
S. 2348
H.R. 6642
H.R. 13631
Please let the President have reports and recommendations
as to the approval of these bills as soon as possible.
Sincerely,
Robert D. Linder
Chief Executive Clerk
The Honorable Roy L. Ash
Director
Office of Management and Budget
Washington, D. C.